Team cooperation incorporating inequity aversion and social norms

Abstract

It is difficult to achieve cooperation in team production because there is an intrinsic free-riding problem. This paper incorporates inequity aversion, which has been ignored by the standard contract theory, but has also been proven by a series of game experiments, to systematically investigate how peer pressures stem from horizontal monitor and comparison, why peer sanction with cost still will be carried out definitely, how peer pressures facilitate team cooperation, and how social norms further ensure cooperation as a unique equilibrium. It is found that the internal peer pressure can realize team cooperation only under very strong inequity aversion, while the external peer pressure can achieve team cooperation under comparatively weak inequity aversion, and only in social norms by which many enough peers are expected to collaborate initiatively, can team cooperation be implemented uniquely. Therefore, to cultivate inequity aversion of staffs and to develop social norm with cooperative expectation surely can facilitate teamwork.