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Inequity Aversion in Tournament

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  • Dominique Demougin
  • Claude Fluet

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Abstract

We consider the cost of providing incentives through tournaments when workers are inequity averse and performance evaluation is costly. The principal never benefits from empathy between the workers, but he may benefit from their propensity for envy depending on the costs of assessing performance. More envious employees are preferred when these costs are high, less envious ones when they are low. Nous analysons le coût des mécanismes incitatifs de type tournois lorsque les travailleurs ont de l'aversion pour l'iniquité et que l'évaluation des performances est coûteuse. L'empathie entre les travailleurs n'est jamais bénéfique pour le principal, mais une propension à l'envie peut être avantageuse selon l'importance des coûts associés à la mesure de la performance. Lorsque ces coûts sont élevés, le principal préférerait des travailleurs plus envieux; à l'inverse, il préférerait qu'ils le soient moins si ces coûts sont faibles.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2003s-18.

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Date of creation: 01 Apr 2003
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Handle: RePEc:cir:cirwor:2003s-18

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Keywords: Tournaments; Inequity Aversion; Envy; Incentives; Performance; Tournois; aversion pour l'iniquité; envie; incitations; performance;

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  1. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics, University of Munich, Department of Economics.
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  3. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers, University of Essex, Department of Economics 419, University of Essex, Department of Economics.
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  9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  10. Krakel, Matthias, 2000. "Relative deprivation in rank-order tournaments," Labour Economics, Elsevier, vol. 7(4), pages 385-407, July.
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  12. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 561-80, June.
  13. Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
  14. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  15. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
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