Responsibility-Alleviation and Other-Regarding Preferences with Peer Workers in Labor Markets: An Experimental Investigation

A peer worker is introduced in a controlled labor market experiment characterized by unobservable effort and incomplete contracts. Workers make decisions independently and without knowledge of each other’s actions in a modified gift exchange experiment. Introducing a peer worker into an ongoing market has a negative and significant effect on effort. This decrease in effort is consistent with responsibility-alleviation on the part of employees and not with other-regarding equity concerns for the manager’s payoffs.