Morale and the evolution of norms

This paper provides theoretical insights into the diversity of economic performances within organizations. Diverse morale and the evolution of norms interact in nontrivial ways. Individuals can acquire and internalize their norms through socialization. The process by which norms evolve exhibits generalized increasing returns. There are two steady states with different effort levels. If the norm, which is enforced by altruism, persists in the limit, everyone chooses the high effort level and high morale is sustainable. On the other hand, if the norm, which is enforced by envy, is persistent, everyone chooses the low effort level and the performance decays in the long run.