1932

Abstract

We review the evidence on social incentives, namely on how social interactions with colleagues, subordinates, bosses, customers, and others shape agents’ effort choices in organizations. We propose a two-way taxonomy based on () whether the social group is horizontal (peers at the same level of the hierarchy) or vertical (individuals at different levels within or outside of the organization) and () whether the agent's effort creates externalities for the other members of their social group. We show settings in which social incentives improve productivity and settings in which they reduce it. In most cases, the size of the effect is approximately 10%, which is half of the typical effect of performance pay. We also show that social incentives can interfere with financial incentives, making them ineffective or even detrimental. We conclude that social incentives are a powerful motivator that must be taken into account in the design of organizational policies and that more research is needed to understand how policies can shape the preferences that underpin these incentives.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-063016-104324
2018-08-02
2024-03-28
Loading full text...

Full text loading...

/deliver/fulltext/economics/10/1/annurev-economics-063016-104324.html?itemId=/content/journals/10.1146/annurev-economics-063016-104324&mimeType=html&fmt=ahah

Literature Cited

  1. Akerlof G 1982. Labor contracts as partial gift exchange. Q. J. Econ. 97:543–69
    [Google Scholar]
  2. Akerlof G, Kranton R 2010. Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being Princeton, NJ: Princeton Univ. Press
  3. Andreoni J 1989. Giving with impure altruism: applications to charity and Ricardian equivalence. J. Political Econ. 97:1447–58
    [Google Scholar]
  4. Andreoni J 1995. Warm-glow versus cold-prickle: the effects of positive and negative framing on cooperation in experiments. Q. J. Econ. 110:1–21
    [Google Scholar]
  5. Ashraf N, Bandiera O 2017. Altruistic capital. Am. Econ. Rev. 107:70–75
    [Google Scholar]
  6. Ashraf N, Bandiera O, Jack BK 2014. No margin, no mission? A field experiment on incentives for public service delivery. J. Public Econ. 120:1–17
    [Google Scholar]
  7. Ashraf N, Bandiera O, Lee S 2016. Losing prosociality in the quest for talent? Sorting, selection and productivity in the delivery of public services Work. Pap., London School Econ.
  8. Bandiera O, Barankay I, Rasul I 2005. Social preferences and the response to incentives: evidence from personnel data. Q. J. Econ. 120:917–62
    [Google Scholar]
  9. Bandiera O, Barankay I, Rasul I 2009. Social connections and incentives in the workplace: evidence from personnel data. Econometrica 77:1047–94
    [Google Scholar]
  10. Bandiera O, Burgess R, Deserranno E, Morel R, Rasul I, Sulaiman M 2017.a Social connections and the delivery of development programs Work. Pap., London School Econ.
  11. Bandiera O, Fischer G, Prat A, Ytsma E 2017.b Do women respond less to performance pay? Building evidence from multiple experiments Work. Pap., London School Econ.
  12. Barnard CI 1938. The Functions of the Executive Cambridge, MA: Harvard Univ. Press
  13. Bartel A, Freeman R, Ichniowski C, Kleiner MM 2011. Can a workplace have an attitude problem? Workplace effects on employee attitudes and organizational performance. Labour Econ 18:411–562
    [Google Scholar]
  14. Bauer M, Blattman C, Chytilova J, Henrich J, Miguel E, Mitts T 2016. Can war foster cooperation. J. Econ. Perspect. 30:249–74
    [Google Scholar]
  15. Beaman L, Magruder J 2012. Who gets the job referral? Evidence from a social networks experiment. Am. Econ. Rev. 102:3574–93
    [Google Scholar]
  16. Besley T, Ghatak M 2005. Competition and incentives with motivated agents. Am. Econ. Rev. 95:616–36
    [Google Scholar]
  17. Blanes i Vidal J, Nossol M 2011. Tournaments without prizes: evidence from personnel records. Manag. Sci. 57:1721–36
    [Google Scholar]
  18. Boning B, Ichniowski C, Shaw K 2007. Opportunity counts: teams and the effectiveness of production incentives. J. Labor Econ. 25:613–50
    [Google Scholar]
  19. Bowles S, Polania-Reyes S 2012. Economic incentives and social preferences: substitutes or complements. J. Econ. Lit. 50:368–425
    [Google Scholar]
  20. Breza E, Kaur S, Shamdasani Y 2018. The morale effects of pay inequality. Q. J. Econ. 133:611–63
    [Google Scholar]
  21. Burks SV, Cowgill B, Hoffman M, Housman M 2015. The value of hiring through employee referrals. Q. J. Econ. 130:805–39
    [Google Scholar]
  22. Charness G, Rabin M 2002. Understanding social preferences with simple tests. Q. J. Econ. 117:817–69
    [Google Scholar]
  23. Choi JK, Bowles S 2007. The coevolution of parochial altruism and war. Science 318:636–40
    [Google Scholar]
  24. Cohn A, Fehr E, Herrmann B, Schneider F 2014. Social comparison and effort provision: evidence from a field experiment. J. Eur. Econ. Assoc. 12:877–98
    [Google Scholar]
  25. Dal Bó E, Finan F, Rossi MA 2013. Strengthening state capabilities: the role of financial incentives in the call to public service. Q. J. Econ. 128:1169–218
    [Google Scholar]
  26. DellaVigna S, List JA, Malmendier U, Rao G 2016. Estimating social preferences and gift exchange at work NBER Work. Pap 22043
  27. DellaVigna S, Pope D 2018. What motivates effort? Evidence and expert forecasts. Rev. Econ. Stud. 85:21029–69
    [Google Scholar]
  28. Deserranno E 2017. Financial incentives as signals: experimental evidence from the recruitment of village promoters in Uganda Work. Pap. 17-105 Glob. Pov. Res. Lab, Buffett Inst. Northwestern Univ. Evanston, IL:
  29. Falk A, Fehr E, Fischbacher U 2005. Driving forces behind informal sanctions. Econometrica 73:2017–30
    [Google Scholar]
  30. Fehr E, Gachter S 2000. Cooperation and punishment in public goods experiments. Am. Econ. Rev. 90:980–94
    [Google Scholar]
  31. Fehr E, Schmidt KM 1999. A theory of fairness, competition, and cooperation. Q. J. Econ. 114:817–68
    [Google Scholar]
  32. Fisman R, Paravisini D, Vig V 2017. Cultural proximity and loan outcomes. Am. Econ. Rev. 107:457–92
    [Google Scholar]
  33. Gaynor M, Rebitzer JB, Taylor LJ 2004. Physician incentives in health maintenance organizations. J. Political Econ. 112:915–31
    [Google Scholar]
  34. Giuliano L, Levine DI, Leonard J 2009. Manager race and the race of new hires. J. Labor Econ. 27:589–631
    [Google Scholar]
  35. Gneezy U, List JA 2006. Putting behavioral economics to work: testing for gift exchange in labor markets using field experiments. Econometrica 74:1365–84
    [Google Scholar]
  36. Griffith R, Neely A 2009. Performance pay and managerial experience in multitask teams: evidence from within a firm. J. Labor Econ. 27:49–82
    [Google Scholar]
  37. Hamilton BH, Nickerson JA, Owan H 2003. Team incentives and worker heterogeneity: an empirical analysis of the impact of teams on productivity and participation. J. Political Econ. 111:465–97
    [Google Scholar]
  38. Hansen DG 1997. Worker performance and group incentives: a case study. Ind. Labor Relat. Rev. 51:37–49
    [Google Scholar]
  39. Hjort J 2014. Ethnic divisions and production in firms. Q. J. Econ. 129:1899–946
    [Google Scholar]
  40. Jones DC, Kato T 1995. The productivity effects of employee stock-ownership plans and bonuses: evidence from Japanese panel data. Am. Econ. Rev. 85:391–414
    [Google Scholar]
  41. Kandel E, Lazear EP 1992. Peer pressure and partnerships. J. Political Econ. 100:801–17
    [Google Scholar]
  42. Knez M, Simester D 2001. Firm-wide incentives and mutual monitoring at Continental Airlines. J. Labor Econ. 19:743–72
    [Google Scholar]
  43. Kranton R, Pease M, Sanders S, Huettel S 2016. Groupy and non-groupy behavior: deconstructing bias in social preferences Work. Pap. Duke Univ. Durham NC:
  44. Kruse DL 1993. Does profit sharing affect productivity? NBER Work. Pap 4542
  45. Leonard JS, Levine DI, Giuliano L 2010. Customer discrimination. Rev. Econ. Stat. 92:670–78
    [Google Scholar]
  46. Manski C 1993. Identification of endogenous social effects: the reflection problem. Rev. Econ. Stud. 60:531–42
    [Google Scholar]
  47. Mas A, Moretti E 2009. Peers at work. Am. Econ. Rev. 99:112–45
    [Google Scholar]
  48. Mayo E 1933. The Human Problems of an Industrial Civilization New York: Macmillan
  49. Pallais A, Sands EG 2016. Why the referential treatment: evidence from field experiments on referrals. J. Political Econ. 124:1793–828
    [Google Scholar]
  50. Roethlisberger F, Dickson WJ 1939. Management and the Worker Cambridge, MA: Harvard Univ. Press
  51. Rotemberg JJ 1994. Human relations in the workplace. J. Political Econ. 102:684–717
    [Google Scholar]
  52. Roy D 1952. Quota restriction and goldbricking in a machine shop. Am. J. Sociol. 57:427–42
    [Google Scholar]
  53. Sobel J 2005. Interdependent preferences and reciprocity. J. Econ. Lit. 43:392–436
    [Google Scholar]
  54. Tabellini G 2008. The scope of cooperation: values and incentives. Q. J. Econ. 123:905–50
    [Google Scholar]
  55. Tonin M, Vlassopoulos M 2010. Disentangling the sources of pro-socially motivated effort: a field experiment. J. Public Econ. 94:1086–92
    [Google Scholar]
  56. Tonin M, Vlassopoulos M 2015. Corporate philanthropy and productivity: evidence from an online real effort experiment. Manag. Sci. 61:1795–811
    [Google Scholar]
  57. Xu G 2017. The costs of patronage: evidence from the British Empire Work. Pap. Haas School Bus., Univ. Calif. Berkeley:
/content/journals/10.1146/annurev-economics-063016-104324
Loading
/content/journals/10.1146/annurev-economics-063016-104324
Loading

Data & Media loading...

Supplemental Material

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error