Working Paper BETA #2015-09

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Title : Becoming “We” Instead of “I”, Identity Management and Incentives in the Workplace.

Author(s) : Jocelyn Donze, Trude Gunnes

Abstract : In this article, we propose to view the firm as a locus of socialization in which employees with heterogeneous work attitudes can be motivated and coordinated through adherence to a social ideal of effort. We develop an agency model in which employees have both a personal and a social ideal of effort. The firm does not observe the personal ideals, but can make its workforce more sensitive to the social ideal by fostering interaction in the workplace. We show that there are two reasons why the firm invests in social bonding. First, it reinforces the effectiveness of monetary incentives. Second, strengthening the social ideal reduces the adverse selection problem and the need to devise distorted payment schemes. We also show that the firm allocates more time to social interaction when personal ideals of effort are low or heterogeneous.

Key-words : agency theory, social interaction, social norms, norm regulation.

JEL Classification : D2, D8, J3, M5.