Becoming "We" Instead of "I", Identity Management and Incentives in the Workplace

This paper studies how a firm fosters formal and informal interactions among its employees to create a collective identity and positively influence effort. We develop a model where employees have both a personal and a social ideal for effort, and where the firm can make its workforce more sensitive to this social ideal by allocating part of the work time to social interactions. We show that by investing in social capital, the firm can increase the power of peer pressure, make screening among heterogeneous employees less costly and, finally, augment the effectiveness of monetary incentives.