IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-14-00174.html
   My bibliography  Save this article

Status Incentives with Discrete Effort: A Note

Author

Listed:
  • Oindrila Dey

    (Jadavpur University)

  • Swapnendu Banerjee

    (Jadavpur University)

Abstract

Using a moral hazard framework with limited liability with discrete effort levels we show that status incentives help in partially reducing the burden on monetary incentives. Yet, the disutility accruing from failure to achieve status dampens the efficiency of status as an incentive. The optimal bonus is independent of the return of the firm. Again, the optimal expected payoff of the agent decreases with an increase in the utility from status whereas exactly opposite happens when disutility from disgrace of failing to achieve status, increase. Thus this paper re-examines Besley and Ghatak (2008) when effort level is discrete.

Suggested Citation

  • Oindrila Dey & Swapnendu Banerjee, 2014. "Status Incentives with Discrete Effort: A Note," Economics Bulletin, AccessEcon, vol. 34(2), pages 1205-1213.
    • Handle: RePEc:ebl:ecbull:eb-14-00174
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2014/Volume34/EB-14-V34-I2-P111.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    2. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    3. Dubey, Pradeep & Geanakoplos, John, 2010. "Grading exams: 100,99,98,... or A,B,C?," Games and Economic Behavior, Elsevier, vol. 69(1), pages 72-94, May.
    4. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
    5. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    6. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    7. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
    8. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, vol. 115, pages 338-363.
    9. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 489-520.
    10. Cohen Chen & Sela Aner, 2007. "Contests with Ties," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-18, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Status and incentives: A critical survey," MPRA Paper 57658, University Library of Munich, Germany.
    2. Oindrila Dey & Swapnendu Banerjee, 2022. "Incentives, Status and Thereafter: A Critical Survey," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 95-115, June.
    3. Oindrila Dey, 2018. "Leniency, Status and Output Informativeness," Review of Market Integration, India Development Foundation, vol. 10(1), pages 1-18, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oindrila Dey & Swapnendu Banerjee, 2022. "Incentives, Status and Thereafter: A Critical Survey," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 95-115, June.
    2. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Incentives and status," MPRA Paper 58399, University Library of Munich, Germany.
    3. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Status and incentives: A critical survey," MPRA Paper 57658, University Library of Munich, Germany.
    4. Oindrila Dey & Swapnendu Banerjee, 2019. "‘Incentive conscious’ agents and moral hazard," Indian Economic Review, Springer, vol. 54(1), pages 149-169, June.
    5. Oindrila Dey, 2018. "Leniency, Status and Output Informativeness," Review of Market Integration, India Development Foundation, vol. 10(1), pages 1-18, April.
    6. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    7. Pradeep Dubey & John Geanakoplos, 2016. "Money and Status: How Best to Incentivize Work," Department of Economics Working Papers 16-02, Stony Brook University, Department of Economics.
    8. Thomas Aronsson & Olof Johansson-Stenman, 2014. "When Samuelson Met Veblen Abroad: National and Global Public Good Provision when Social Comparisons Matter," Economica, London School of Economics and Political Science, vol. 81(322), pages 224-243, April.
    9. Ed Hopkins, 2008. "Inequality, happiness and relative concerns: What actually is their relationship?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(4), pages 351-372, December.
    10. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    11. Thomas Aronsson & Olof Johansson-Stenman, 2013. "Veblen’s theory of the leisure class revisited: implications for optimal income taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(3), pages 551-578, September.
    12. Timothy Gubler & Ian Larkin & Lamar Pierce, 2016. "Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment," Organization Science, INFORMS, vol. 27(2), pages 286-303, April.
    13. Mujcic, Redzo & Frijters, Paul, 2015. "Conspicuous consumption, conspicuous health, and optimal taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 59-70.
    14. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Comparison in Games of Status," Edinburgh School of Economics Discussion Paper Series 138, Edinburgh School of Economics, University of Edinburgh.
    15. Dey, Oindrila & Banerjee, Swapnendu, 2015. "Endogenous favouritism with status incentives: A model of optimum inefficiency," MPRA Paper 62828, University Library of Munich, Germany.
    16. Ashraf, Nava & Bandiera, Oriana & Jack, B. Kelsey, 2014. "No margin, no mission? A field experiment on incentives for public service delivery," Journal of Public Economics, Elsevier, vol. 120(C), pages 1-17.
    17. Marcin Piekalkiewicz, 2016. "Money, Social Capital and Materialism. Evidence from Happiness Data," Department of Economics University of Siena 731, Department of Economics, University of Siena.
    18. Thomas Aronsson & Olof Johansson‐Stenman, 2010. "Positional Concerns In An Olg Model: Optimal Labor And Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1071-1095, November.
    19. Dohmen, Thomas & Falk, Armin & Fliessbach, Klaus & Sunde, Uwe & Weber, Bernd, 2011. "Relative versus absolute income, joy of winning, and gender: Brain imaging evidence," Journal of Public Economics, Elsevier, vol. 95(3), pages 279-285.
    20. Bilancini, Ennio & D'Alessandro, Simone, 2012. "Long-run welfare under externalities in consumption, leisure, and production: A case for happy degrowth vs. unhappy growth," Ecological Economics, Elsevier, vol. 84(C), pages 194-205.

    More about this item

    Keywords

    Status; incentives; motivation; moral hazard; optimal contract;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-14-00174. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.