Fairness and Desert in Tournaments

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Fairness and Desert in Tournaments

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David Gill
Rebecca Stone

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David Gill

Abstract

We develop a model to describe the behavior of agents who care about receiving their "just deserts" in competitive situations. In particular we analyze the strategic behaviour of two identical desert-motivated agents in a rank-order tournament. Each agent is assumed to be loss averse about an endogenous and meritocratically determined reference point that represents her perceived entitlement. Sufficiently strong desert concerns render the usual symmetric equilibrium unstable or non-existent and allow asymmetric desert equilibria to arise in which one agent works hard while the other slacks off. As a result, agents may prefer competition for status to a random allocation, even when the supply of status is fixed. When employees are desert-motivated we find that an employer may prefer a tournament to relative performance pay linear in the difference in the agents` outputs if output noise is sufficiently fat-tailed or if the employer can use the tournament to induce an asymmetric equilibrium.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 279.

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Date of creation: 2006
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Handle: RePEc:oxf:wpaper:279

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Find related papers by JEL classification:
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-09-23 (All new papers)
NEP-MIC-2006-09-23 (Microeconomics)

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Benno Torgler & Markus Schaffner & Bruno S.Frey & Sascha L. Schmidt, 2008. "Looking Awkward When Winning and Foolish When Losing: Inequity Aversion and Performance in the Field," School of Economics and Finance Discussion Papers and Working Papers Series 230, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
Other versions:
- Benno Torgler & Markus Schaffner & Bruno S. Frey & Sascha L. Schmidt, 2008. "Looking Awkward When Winning and Foolish When Losing: Inequity Aversion and Performance in the Field," IEW - Working Papers iewwp369, Institute for Empirical Research in Economics - IEW. [Downloadable!]
- Benno Torgler & Markus Schaffner & Bruno S. Frey & Sascha L. Schmidt, 2008. "Looking Awkward When Winning and Foolish When Losing: Inequity Aversion and Performance in the Field," CREMA Working Paper Series 2008-11, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]

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