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Prizes Versus Wages with Envy and Pride

  • Pradeep K. Dubey
  • John Geanakoplos
  • Ori Haimanko

We show that if agents are risk neutral, prizes outperform wages if and only if there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).

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File URL: http://www.dklevine.com/archive/refs4786969000000000336.pdf
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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000336.

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Date of creation: 09 Jan 2012
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Handle: RePEc:cla:levarc:786969000000000336
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Bartling, Björn & Siemens, Ferdinand von, 2006. "The Intensity of Incentives in Firms and Markets: Moral Hazard with Envious Agents," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 115, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Englmaier, Florian & Achim Wambach, 2003. "Contracts and Inequity Aversion," Royal Economic Society Annual Conference 2003 74, Royal Economic Society.
  3. Christian Grund & Dirk Sliwka, 2002. "Envy and Compassion in Tournaments," Bonn Econ Discussion Papers bgse32_2002, University of Bonn, Germany.
  4. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  5. Frank, Robert H., 1993. "Choosing the Right Pond: Human Behavior and the Quest for Status," OUP Catalogue, Oxford University Press, number 9780195049459, May.
  6. Pradeep Dubey & John Geanakoplos, 2005. "Grading in Games of Status: Marking Exams and Setting Wages," Cowles Foundation Discussion Papers 1544, Cowles Foundation for Research in Economics, Yale University, revised Dec 2005.
  7. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  8. repec:adr:anecst:y:2003:i:71-72:p:13 is not listed on IDEAS
  9. Pedro Rey Biel, 2004. "Inequity aversion and team incentives," Microeconomics 0407009, EconWPA.
  10. 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.
  11. Bolle, Friedel, 2000. "Is altruism evolutionarily stable? And envy and malevolence?: Remarks on Bester and Guth," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 131-133, May.
  12. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  13. Kirchsteiger, Georg, 1994. "The role of envy in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 373-389, December.
  14. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  15. repec:adr:anecst:y:2001:i:63-64:p:15 is not listed on IDEAS
  16. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
  17. William S. Neilson & Jill Stowe, 2010. "Piece-Rate Contracts For Other-Regarding Workers," Economic Inquiry, Western Economic Association International, vol. 48(3), pages 575-586, 07.
  18. Ed Hopkins & Tatiana Kornienko, 2002. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh.
  19. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
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