Hiring an employee's friends is good for business: Overcoming moral hazard with social networks

A. Dhillon*, R. Peeters, O. Bartrum, A.M. Yuksel

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

1 Citation (Web of Science)


In settings where financial incentives are costly to implement, we explore the use of employee referrals to reduce worker moral hazard. Employers can exploit referrer-worker social preferences towards each other by conditioning the referrer rewards on worker effort. In order to test this theory, we design a laboratory experiment with employers, referrers and workers using information on real friendship relationships extracted from Facebook. The design allows us to pin down the effect of social preferences between worker and referrer in reducing worker moral hazard. Our main result is that workers put in higher effort when referrals are used relative to anonymous hiring. The experimental evidence suggests that directed altruism is a plausible mechanism underlying referrer and worker choices.
Original languageEnglish
Article number101928
Number of pages15
JournalLabour Economics
Publication statusPublished - 1 Dec 2020


  • altruism
  • experiment
  • moral hazard
  • real effort
  • reciprocity
  • referrals
  • social networks
  • social proximity
  • strength of ties
  • Referrals
  • Reciprocity
  • Experiment
  • Social networks
  • Altruism
  • Strength of ties
  • Social proximity
  • Moral hazard

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