This paper studies whether incentivizing performance with competition and cooperation-based incentive schemes, rather than individual compensation, affects peer effects on subsequent risk behaviour. We run a laboratory experiment in which we introduce three different compensation schemes—piece rate, the equal-split-sharing-rule and a tournament—associated with a real effort task and we measure risk behaviour both before and after the effort task. We find that competition more than halves peer in…
Read moreThis paper studies whether incentivizing performance with competition and cooperation-based incentive schemes, rather than individual compensation, affects peer effects on subsequent risk behaviour. We run a laboratory experiment in which we introduce three different compensation schemes—piece rate, the equal-split-sharing-rule and a tournament—associated with a real effort task and we measure risk behaviour both before and after the effort task. We find that competition more than halves peer influence on risk behaviour compared with piece-rate compensation and in some specifications produces negative peer effects. Competition also significantly reduces an individual’s feeling of attachment to their peers and self-reported peer influence.