Peer pressure and effort motivation: theoretical foundations and experimental evidence.

Summary In recent years, the literature on peer pressure as applied to work teams has modeled mutual control by assuming that the peer pressure environment boils down to the control effort exerted by agents over other team members. The purpose of this thesis is to go beyond existing models of mutual control by considering that agents' decisions also relate to sanctioning decisions. Since punishing is costly, agents, rational and maximizing their monetary gains, have no incentive to punish their peers. Consequently, without a credible threat, cooperation cannot emerge. The proposed theoretical models are tested using experimental economics. The experiments conducted test a production team relationship where agents have the possibility to punish their peers. The results of the experiments show that subjects do not hesitate to sanction stowaways and that the opportunity to sanction significantly increases the level of cooperation. The experimental results also show that the effectiveness of peer pressure is strongly correlated with the cost as well as the nature of the sanctions (monetary, non-monetary, exclusion). The high level of cooperation when subjects have the opportunity to sanction each other is explained by the agents' desire to avoid both the monetary consequences of sanctions and the disapproval of their peers. Furthermore, two main reasons are given to explain sanctioning behavior. The first reason is that agents sanction their peers in order to encourage them to cooperate more in the future. The second reason is based on agents' distributional considerations, and self-centered inequality aversion explains punishment by the desire to reduce differences in earnings. Cooperation can then occur if agents are sufficiently averse to inequality.