social incentives : the causes and consequences of social networks in the workplace ∗ oriana bandiera † iwan barankay ‡ imran rasul § april 2007

We present evidence on the causes and consequences of workers’ social ties in the workplace on individual and firm performance. To do so, we combine firm personnel records on individual productivity with a survey we administered to workers to identify their social network of friends within the firm. Our findings indicate there are social incentives — the presence of friends affects worker’s behavior, despite there being no externalities across workers arising from the production technology or compensation scheme. The nature of social incentives is such that workers conform to a common norm — the presence of friends increases the productivity of workers who are less able than their friends and decreases the productivity of workers who are more able than their friends. As workers are paid piece rates based on individual productivity, the strength of social incentives can be quantified in terms of earnings and are such that — (i) workers who are more able than their friends are willing to forgo 10% of their earnings to conform to the norm; (ii) workers who have at least one friend is who more able than themselves, are willing to exert more effort and increase productivity by 10% to meet the norm. The distribution of worker ability is such that net effect of social incentives on firm performance is positive.