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Envy and Compassion in Tournaments

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  • Christian Grund
  • Dirk Sliwka

Abstract

Many experiments and field studies indicate that most individuals are not purely motivated by material self‐interest but also care about the well being of others. In this paper, we examine tournaments among inequity averse agents, who dislike disadvantageous inequity (envy) and advantageous inequity (compassion). It turns out that inequity averse agents exert higher efforts than purely self‐interested agents for a given prize structure. Contrary to standard tournament theory, first‐best efforts cannot be implemented when prizes are endogenous. Furthermore, the choice between vertical and lateral promotions is examined and it is shown that inequity costs have to be traded off against losses in human capital.

Suggested Citation

  • Christian Grund & Dirk Sliwka, 2005. "Envy and Compassion in Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 187-207, March.
  • Handle: RePEc:bla:jemstr:v:14:y:2005:i:1:p:187-207
    DOI: 10.1111/j.1430-9134.2005.00039.x
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    More about this item

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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