Group Identity and Social Preferences

in economics in which social identity theory might prove especially valuable is the economics oforganizations. Our results suggest that instead of modeling identity as a substitute for monetary rewardsand thus a cost-saving device, a more prominent effect of identity is the increased likelihoodof SWM actions and positive reciprocity.A second contribution of this paper is its practical implications for organizational design. Inneoclassical economics, the traditional approach to mechanism design relies heavily on incentivesderived from Taylorism. However, this theory is silent about whether a deep sense of identityamong employees within the firm is a worthwhile investment. Despite this lack, examples of identitycreation abound. Nike founder Phil Knight and many of his employees have tattoos of the Nike“swoosh” logo on their left calves as a sign of group membership and camaraderie (Camerer andMalmendier 2005). Standard economic theory does not have an explanation for such phenomena.Our results suggest that creating a group identity would induce people to be more helpful to eachother, and to increase the likelihood of SWM actions, which would improve payoffs for all relevantparties, the principal (firm) as well as the agents (workers). The use of social identity as a designtool is a promising direction of research, especially in environments where monetary incentives arelimited, such as online communities (Ren, Kraut and Kiesler 2006).There are several directions for fruitful future research. On the theory front, a formalizationof identity and its applications to various domains of organization design would help us betterunderstand the effect of social identity on optimal contract and organizational hierarchies. Onthe empirical front, it would be interesting to explore the impact of social identity in practicalmechanism design in the laboratory and the field.20