Games of status and discriminatory contracts
Following recent empirical evidence which indicates the importance of rank for the determination of workers' wellbeing, this paper introduces status seeking preferences in the form of rank-dependent utility functions into a moral-hazard framework with one firm and multiple workers, but no correlation in production. We show that workers' concern for the rank of their wage in the firm's wage distribution induces the firm to offer discriminatory wage contracts when its aim is to induce all workers to expend effort.
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- Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
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- Ernst Fehr & Klaus M. Schmidt, "undated". "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
- Dhillon, Amrita & Herzog-Stein, Alexander, 2009.
"Games of status and discriminatory contracts,"
Games and Economic Behavior,
Elsevier, vol. 65(1), pages 105-123, January.
- Dhillon, Amrita & Herzog-Stein, Alexander, 2006. "Games of Status and Discrininatory Contract," The Warwick Economics Research Paper Series (TWERPS) 759, University of Warwick, Department of Economics.
- Baron, James N., 1988. "The employment relation as a social relation," Journal of the Japanese and International Economies, Elsevier, vol. 2(4), pages 492-525, December.
- Robert H. Frank, 1984. "Interdependent Preferences and the Competitive Wage Structure," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 510-520, Winter.
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