Social Comparison, Group Composition, and Incentive Provision
|Type:||Articles in Refereed Journals (International)|
|Published by:||International Journal of Game Theory|
|Additional information:||Vol. 41 (3) 2012, S. 565-602|
This article analyzes the optimal composition of groups of arbitrary size according to the social preferences of group members in a situation of moral hazard. We focus on rivalry, pure self-interest and altruism to show that in a situation where every group member compares his or her remuneration to the average remuneration of all members in the same group, ideally there should be as many extreme altruists as there are extreme rivals. If, by contrast, every member of the group compares his or her own remuneration to that of a focal agent, ideally, this focal agent should be a strong altruist, while all other group members should be highly competitive. Our results show that it is important to foster heterogeneity in the social preferences of the members of a group in order to maximize the profitability of the firm.