Working Paper No. 565

Social Norms and Optimal Incentives in Firms

Published: October 8, 2001Pages: 12Keywords: Social Norms, Incentives, ContractsJEL-codes: D23

Social Norms and Optimal Incentives in Firms Steffen Huck, Dorothea Kübler and Jörgen Weibull


This paper deals with the interplay between economic incentives and social norms in firms. We outline a simple model of team production and provide preliminary results on linear incentive schemes in the presence of a social norm that may cause multiple equilibria. The effect of the social norm on the optimal bonus rate is discussed, as well as the effectiveness of temporary changes in the bonus rate as a means to move a firm from a bad to a good equilibrium.

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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