Contract on Peer Pressure Networks

15:30-17:00, Sunday, April 7, 2024

I-206, Boxue Building, DUFE

Dr. Yang Sun is now an associate professor of Southwestern University of Finance and Economics. He obtained his Ph.D. in 2018 from Department of Economics in National University of Singapore. His research interests include network economy and game theory. His works have been published in International Economic Review, Journal of Economic Theory, Games and Economic Behavior, Economic Theory, etc. 

We study moral hazard in teams with peer pressure. Agents embedded in a social network choose effort levels while facing pressure from neighbors. Peer pressure can impose psychological costs but also motivate efforts through complementarities. The principal designs linear contracts based on all outputs to maximize total surplus. The combination of peer pressure and moral hazard creates congestion effects between indirectly connected agents, as in Currarini et al. (2017). We characterize the optimal contract and equilibrium outcomes. Own-performance wage sensitivities and efforts are sums of weighted Katz-Bonacich centralities. Whether pressure leads to overwork or underwork depends on peer effects strength and the agent's location. Comparative statics on network structure identify the key agent whose absence causes the largest surplus loss. Given density, nested split structures maximize surplus when psychological cost of peer pressure is relatively low. The tradeoff between psychological costs and strategic complements limits optimal network density. Finally, we characterize optimal psychotherapy extending Galeotti et al. (2020) to games with congestion effects.

For more information of the seminar, scan the following QR code(s) to join Tencent QQ group (904 544 292) or WeChat group named "IAER Seminar (5)", please.

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