Differences in Social Preferences - Are They Profitable for the Firm?
AbstractThis 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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Bibliographic InfoPaper provided by University of Munich, Munich School of Management in its series Discussion Papers in Business Administration with number 2122.
Date of creation: 21 Feb 2008
Date of revision:
Social Preferences; Rivalry; Altruism; Egoism; Team Composition; Performance Measurement;
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; Mechanism Design
- 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
This paper has been announced in the following NEP Reports:
- NEP-ACC-2008-03-01 (Accounting & Auditing)
- NEP-ALL-2008-03-01 (All new papers)
- NEP-BEC-2008-03-01 (Business Economics)
- NEP-CBE-2008-03-01 (Cognitive & Behavioural Economics)
- NEP-LAB-2008-03-01 (Labour Economics)
- NEP-SOC-2008-03-01 (Social Norms & Social Capital)
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