Transparency, Inequity Aversion, and the Dynamicsof Peer Pressure in Teams: Theory and Evidence

We provide an explanation for peer pressure in teams based on inequity aversion. Analyzinga two-period model with two agents, we find that the effect of inequity aversion stronglydepends on the information structure. When contributions are unobservable, agents act as ifthey were purely selfish. However, when contributions are made transparent at an interimstage, agents exert higher efforts in the first period and adjust their efforts according to theinterim information in the second period.[...]