Peer Pressure in Work Teams : The effects of Inequity Aversion

Abstract

Many empirical studies have shed light on the efficiency of peer pressure. I propose here to model peer pressure by incorporating in the utility function self centered inequity aversion. I find that opportunity for sufficiently inequity averse players to punish their peers, is effective in inducing others to cooperate. At the equilibrium, all players cooperate and punish any shirker since punishing is a way to reduce inequity. Contrary, nobody cooperates without peer pressure even if players are inequity averse.