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Interdependent Preferences and the Competitive Wage Structure

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  • Robert H. Frank

Abstract

This article shows by example that when workers care about relative income and are free to choose their coworkers, the equilibrium distribution of wages within firms must be less dispersed than the corresponding distribution of marginal products. An implicit market for within-firm status is shown to produce welfare gains by sorting workers among firms in accordance with how much they are willing to pay for high rank. The resulting equilibrium Pareto dominates allocations in which each worker is paid his marginal product.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 15 (1984)
Issue (Month): 4 (Winter)
Pages: 510-520

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Handle: RePEc:rje:randje:v:15:y:1984:i:winter:p:510-520

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Cited by:
  1. Kai A. Konrad & Florian Morath, 2011. "Social Mobility and Redistributive Taxation," Working Papers social_mobility_and_redis, Max Planck Institute for Tax Law and Public Finance.
  2. Komlos, John & Salamon, Peter, 2008. "The poverty of growth with interdependent utility functions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2242-2247, December.
  3. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 91-114, Fall.
  4. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2008. "Social Decision Theory: Choosing within and between Groups," Carlo Alberto Notebooks 71, Collegio Carlo Alberto.
  5. Alison L Booth & Gylfi Zoega, 2005. "Worker Heterogeneity, Intra-firm Externalities and Wage Compression," Birkbeck Working Papers in Economics and Finance 0515, Birkbeck, Department of Economics, Mathematics & Statistics.
  6. Hyll, Walter & Stark, Oded, 2011. "On the economic architecture of the workplace: repercussions of social comparisons amongst heterogeneous workers," University of Tuebingen Working Papers in Economics and Finance 6, University of Tuebingen, Faculty of Economics and Social Sciences.
  7. Amihai Glazer & Vesa Kanniainen & Panu Poutvaara, 2004. "Initial Luck, Status-Seeking and Snowballs Lead to Corporate Success and Failure," CESifo Working Paper Series 1216, CESifo Group Munich.
  8. Konrad, Kai A. & Morath, Florian, 2011. "Aspirations of the middle class: Voting on redistribution and status concerns," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2011-102, Social Science Research Center Berlin (WZB).
  9. Kidd, Michael & Nicholas, Aaron & Rai, Birendra, 2013. "Tournament outcomes and prosocial behaviour," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 387-401.
  10. Ghazala Azmat & Nagore Iriberri, 2009. "The importance of relative performance feedback information: evidence from a natural experiment using high school students," LSE Research Online Documents on Economics 28520, London School of Economics and Political Science, LSE Library.
  11. Cardoso, Ana Rute, 2012. "Money and rank in the labor market," Economics Letters, Elsevier, vol. 115(2), pages 325-328.
  12. Levent Kockesen & Efe A. Ok & Rajiv Sethi, 1997. "Interdependent Preference Formation," Game Theory and Information 9708002, EconWPA.

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