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Overcoming moral hazard with social networks in the workplace : an experimental approach

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Dhillon, Amrita , Peeters, Ronald and Yüksel, Ayşe Müge (2014) Overcoming moral hazard with social networks in the workplace : an experimental approach. Working Paper. Coventry, UK: Department of Economics, University of Warwick. CAGE Online Working Paper Series, Volume 2014 (Number 183).

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Abstract

The use of social networks in the workplace has been documented by many authors,
although the reasons for their widespread prevalence are less well known. In this paper
we present evidence based on a lab experiment that suggests quite strongly that social
networks are used by employers to reduce worker moral hazard. We capture moral hazard
with a dictator game between the referrer and worker. The worker chooses how much
to return under different settings of social proximity. Social proximity is captured using
Facebook friendship information gleaned anonymously from subjects once they have been
recruited. Since employers themselves do not have access to social connections, they
delegate the decision to referrers who can select among workers with different degrees of
social proximity to themselves. We show that employers choose referrals over anonymous
hiring relatively more when they know that the referrer has access to friends, and are
willing to delegate more often when the social proximity between referrer and worker is
potentially higher. In keeping with this expectation, referrers also choose workers with a
greater social proximity to themselves and workers who are closer to referrers indeed pay
back more to the referrer. The advantage of the lab setting is that we can isolate directed
altruism as the only reason for these results.

Item Type: Working or Discussion Paper (Working Paper)
Alternative Title:
Subjects: H Social Sciences > HT Communities. Classes. Races
Q Science > QA Mathematics > QA76 Electronic computers. Computer science. Computer software
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Social networks, Industrial hygiene , Industrial management, Employees -- Effect of technological innovations on
Series Name: CAGE Online Working Paper Series
Publisher: Department of Economics, University of Warwick
Place of Publication: Coventry, UK
Official Date: January 2014
Volume: Volume 2014
Number: Number 183
Number of Pages: 23
Status: Not Peer Reviewed
Publication Status: Published
Funder: University of Warwick
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URI: http://wrap.warwick.ac.uk/id/eprint/59356

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