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

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  • 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.

Suggested Citation

  • Küpper, Hans-Ulrich & Sandner, Kai, 2008. "Differences in Social Preferences - Are They Profitable for the Firm?," Discussion Papers in Business Administration 2122, University of Munich, Munich School of Management.
    • Handle: RePEc:lmu:msmdpa:2122
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    References listed on IDEAS

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    Cited by:

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    2. Ramalingam, Abhijit, 2009. ""Endogenous" Relative Concerns: The Impact of Workers' Characteristics on Status and Pro ts in the Firm," MPRA Paper 18759, University Library of Munich, Germany.

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    More about this item

    Keywords

    Social Preferences; Rivalry; Altruism; Egoism; Team Composition; Performance Measurement;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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