We study the effects of peer pressure on the incentives of riskaverse agents. We define the peer pressure function and then assume that each agent feels peer pressure not only when his effort level is below the standard level, but also when it is above that level. We also suppose that agents are...

This paper examines a multi-agent moral hazard model in which agents have expectation-based reference-dependent preferences `a la K˝oszegi and Rabin (2006, 2007). The agents’ utilities depend not only on their realized outcomes but also on the comparisons of their realized outcomes with their...

We analyze a task-assignment model in which a principal assigns a task to one of two agents depending on future states. If the agents have concave utility, the principal assigns the task to them contingent on the state. We show that if the agents are loss averse, a state-independent...

We develop a political economy model of growth to examine economic development led by the interactions between an economic decision concerning a firm’s production technology (CRS vs. IRS technology) and a political decision concerning public infrastructure. We show that multiple equilibrium...

This paper studies the effects of peer pressure on incentives. We assume that, in addition to the material payoff, each agent's utility includes the psychological payoff from peer pressure generated by a comparison of effort costs. We show that the optimal incentive schemes depend mainly on the...

We develop a political economy model of growth to examine economic development led by the interactions between an economic decision concerning a firm’s production technology (CRS vs IRS technology) and a political decision concerning public infrastructures. We show that multiple equilibrium...

This paper studies the role played by the social norms of working hours in a household labor- leisure and fertility decision model. We suppose that social norms enforce workers not to deviate from the ideal level of working hours, which depends on past and current observations of working hours...

We analyze a simple task-assignment model in which a principal assigns a task to one of two agents depending on the state. If the agents have standard concave utility, the principal assigns the task to an agent with the highest productivity in each state. In contrast, if the agents are loss...

We investigate moral-hazard problems with limited liability where agents have expectation-based reference-dependent preferences. We show that stochastic compensation for low performance can be optimal. Because of loss aversion, the agents have first-order risk aversion to wage uncertainty. This...

This article studies the effects of peer pressure on the incentives of risk-averse agents. It defines the peer pressure function and then assumes that each agent feels peer pressure not only when his effort level is below the standard level, but also when it is above that level. It also supposes...