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Envy and Compassion in Tournaments

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  • Grund, Christian

    ()
    (RWTH Aachen University)

  • Sliwka, Dirk

    ()
    (University of Cologne)

Abstract

Many experiments indicate that most individuals are not purely motivated by material self interest, but also care about the well being of others. In this paper we examine tournaments among inequity averse agents, who dislike disadvantageous inequity (envy) and advantageous inequity (compassion). It turns out that inequity averse agents exert higher effort levels than purely self-interested agents for a given prize structure. Contrary to standard tournament theory first-best efforts can not be implemented when prizes are endogenous. Several extensions are studied like the case of spiteful agents, sabotage, asymmetric agents and an application on the choice between vertical and lateral promotions within firms.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 647.

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Length: 28 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:iza:izadps:dp647

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Keywords: tournaments; inequity aversion; promotions;

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  1. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics, University of Munich, Department of Economics 20650, University of Munich, Department of Economics.
  2. Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics, University of Munich, Department of Economics 14, University of Munich, Department of Economics.
  3. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series, Department of Economics, UC Santa Barbara qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  4. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers, National Bureau of Economic Research, Inc 0401, National Bureau of Economic Research, Inc.
  5. Florian Englmaier & Achim Wambach, 2002. "Contracts and Inequity Aversion," CESifo Working Paper Series, CESifo Group Munich 809, CESifo Group Munich.
  6. 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.
  7. Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(4), pages 867-81, August.
  8. Mui, V.L., 1992. "The Economics of Envy," Papers, Southern California - Department of Economics 9306, Southern California - Department of Economics.
  9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
  10. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(1), pages 27-56, January.
  11. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 14(4), pages 555-70, October.
  12. Stark, Oded, 1990. "A Relative Deprivation Approach to Performance Incentives in Career Games and Other Contests," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 211-27.
  13. Prendergast, Canice & Topel, Robert, 1993. "Discretion and bias in performance evaluation," European Economic Review, Elsevier, Elsevier, vol. 37(2-3), pages 355-365, April.
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