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Differences in Social Preferences - Are They Profitable for the Firm?

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Author Info
Küpper, Hans-Ulrich
Sandner, Kai
Abstract

This paper analyzes the impact of heterogeneous (social) preferences on the weighting and combination of performance measures as well as on a firm’s profitability. We consider rivalry, egoism and altruism as extreme forms within the continuum of possible preferences and show that the principal can typically exploit both the altruistic and rivalistic behavior of his agents. Firm profits reach their maximum value if the agents are differentiated as much as possible in their individual characteristics. We provide further insight; namely, that in order to realize these gains in profitability, it is necessary to reallocate participation in performance measures such that competitive agents are privileged as compared to altruistic agents. In this context, stochastic interdependencies are of importance since they yield overlapping functions of the share parameters, causing additional adaptations in the optimal design of the wage compensation system.

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Paper provided by University of Munich, Munich School of Management in its series Discussion Papers in Business Administration with number 2122.

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Date of creation: 21 Feb 2008
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Handle: RePEc:lmu:msmdpa:2122

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Related research
Keywords: Social Preferences; Rivalry; Altruism; Egoism; Team Composition; Performance Measurement;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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  15. Dominique Demougin & Claude Fluet, 2003. "Group vs. Individual Performance Pay When Workers Are Envious," Cahiers de recherche 0318, CIRPEE. [Downloadable!]
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  16. Bester, Helmut & Guth, Werner, 1998. "Is altruism evolutionarily stable?," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 193-209, February. [Downloadable!] (restricted)
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