Peer Pressure and Partnerships

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Abstract
Partnerships and profit sharing are often claimed to motivate work- ers by giving them a share of the pie. But in organizations of any significant size, the free-rider effects would seem to choke off any motivational forces. This analysis explores how peer pressure oper- ates and how factors such as profit sharing, shame, guilt, norms, mutual monitoring, and empathy interact to create incentives in the firm. The argument that Japanese firms enjoy team spirit because compensation is linked to overall profitability is analyzed. An expla- nation for the prevalence of partnerships among individuals in simi- lar occupations is provided.
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