Modular Pyramidal Hierarchies and Social Norms. An Agent Based Model. Arianna Dal Forno and Ugo Merlone 1 1 Department of Statistics and Applied Mathematics, Piazza Arbarello 8 I-10122 Torino ITALY Abstract. We provide a model of a hierarchical organization where artificial agents with limited individual capacity allocate their efforts in two activities: cooperation and work with supervisor. Different aspects of production and in- teraction are examined. The model is implemented using a software simulation platform in order to test different hypotheses about agent behavior and the re- sulting performance of the organization. Our results allow the identification of some aspects able to improve the organization performance even in the pres- ence of heterogeneous and bounded rationality agents. 1 Introduction The Moral Hazard literature approaches multi-agent relationships in different ways. Among them, the joint production models provide interesting insights in terms of income distribution among the agents. Another relevant aspect has been the compari- son between centralized and decentralized structures as far contracting goes. For example, the literature provides conditions under which the situation where all the contracts are proposed by the principal (centralized organization) is superior to a more decentralized one. Following the joint production approach we consider a modular model of hierar- chical organization. Specifically, we consider pyramidal structures. This particular structure is spread wise and, consequently, both the economic (see [2] for a formal analysis) and simulative literature (for instance see [4]) finds interest. For an analysis of the different approaches to pyramidal structures see [7]. In our model, the organization consists of heterogeneous agents interacting in su- pervised teams with a Cobb-Douglas production function. We provide a theoretical analysis of the agents interaction in the modular element of the organization. Fur- thermore, we study the impact of heterogeneity of agents, social norms and incentive schemes in the organization. While in each team there exist infinite solutions to the optimal effort allocation problem, the presence of a social norm allows the selection of one of them.