Monetary incentives, particularly as to how they relate to agency problems and free-rider problems, are relatively well understood compared to social incentives, such as the desire to socialize with friends in the workplace, or the desire to work hard when one witnesses ones peers working hard. Such data is hard to come by, however. In the new issue of ReStud, Bandiera et al gather data on friendship relations among immigrant workers at a fruit farm in the UK. Each day, workers are assigned to work in various parts of the field, sometimes with friends and sometimes not. Using variation in field quality on different days as an instrumental variable, the authors find that the average worker does not become more productive when working alongside friends, but this happens because high productivity workers work less hard when among friends, and low productivity workers work harder when among friends (on average, the effect is 10% either way). The change is productivity is monotonic in the difference in innate ability. Should the employer be able to optimally allocate workers alongside friends to maximize the effect of positive social incentives, productivity would increase 15%. As a comparison, earlier work has shown that switching from weak to strong monetary incentives (such as fixed wage to piece rate) has been shown to increase productivity by around 20%. That is, the effect of optimal social incentives is strong even relative to optimal monetary mechanism design.
This paper is very closely related to the 2009 AER “Peers at Work” by Mas & Monetti. That paper finds similar results – agents work harder when they witness high productivity workers.