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The Sociology of Groups and The Economics of Incentives: Theory and Evidence on Compensation Systems
Any type of content formally published in an academic journal, usually following a peer-review process.
posted on 01.01.1997by William E. Encinosa III, Martin Gaynor, James B. Rebitzer
This paper incorporates the sociological concept of “group norms” into an economic
analysis of pay systems. We use a behavioral microeconomic model and a unique survey of
medical groups to examine the theoretical and empirical relationship between group norms and
incentive pay. Our findings suggest that, at least for medical groups, norms are binding
constraints in the choice of pay practices. While group norms matter, the patterns in the data
suggest that they are not all that matters. Analysis of the preferences and activities of individual
physicians indicate that factors highlighted by the economic theory of agency, notably income
insurance and multi-task considerations, also shape pay policies. The conclusion we draw from
these results is that the sociological concept of group norms augments rather than replaces more
conventional economic analyses of pay practices.