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Unilateral Envy, Pay Inversion, and the Cost of Age Diversity

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  • Eiji Ohashi

Abstract

Research shows that older people are more likely to be envious of their younger peers than the other way around. I analyze how such unilateral envy affects optimal incentive contracts for young and old agents. I show that the optimal contracts can be characterized by pay inversion: The principal offers a higher expected wage to the young agent than to the old agent. Further, I show that the principal is generally worse off with unilaterally envious agents than with bilaterally envious ones. I discuss the implications of these findings.

Suggested Citation

  • Eiji Ohashi, 2025. "Unilateral Envy, Pay Inversion, and the Cost of Age Diversity," Bulletin of Economic Research, Wiley Blackwell, vol. 77(4), pages 437-443, October.
    • Handle: RePEc:bla:buecrs:v:77:y:2025:i:4:p:437-443
    DOI: 10.1111/boer.12496
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    References listed on IDEAS

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    2. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    3. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
    4. Bartling, Björn & von Siemens, Ferdinand A., 2010. "The intensity of incentives in firms and markets: Moral hazard with envious agents," Labour Economics, Elsevier, vol. 17(3), pages 598-607, June.
    5. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-1160, September.
    6. Hutchens, Robert M, 1989. "Seniority, Wages and Productivity: A Turbulent Decade," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 49-64, Fall.
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