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Awards are a Special Kind of Signal

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  • Bruno S. Frey
  • Jana Gallus

Abstract

Awards appear in various forms, ranging from the title "Employee of the Month" to prizes, decorations, and other honors. This contribution develops a theory designed to analyze the widely-observed phenomenon of award giving. We use signaling theory as a basis for our discussion. The perspectives of the giver, and of (potential) recipients, of awards are studied in a principal-agent framework. The analysis highlights conditions under which signaling failures are likely to arise and compares awards with monetary compensation. The paper informs management practice by presenting a systematic appraisal of the signaling functions of awards. It proposes under which conditions awards tend to raise performance, and when monetary compensation proves to be superior.

Suggested Citation

  • Bruno S. Frey & Jana Gallus, 2014. "Awards are a Special Kind of Signal," CREMA Working Paper Series 2014-04, Center for Research in Economics, Management and the Arts (CREMA).
  • Handle: RePEc:cra:wpaper:2014-04
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jana Gallus, 2015. "Fostering Voluntary Contributions to a Public Good A Large-Scale Natural Field Experiment at Wikipedia," CREMA Working Paper Series 2015-05, Center for Research in Economics, Management and the Arts (CREMA).
    2. Ho Fai Chan & Bruno S. Frey & Jana Gallus & Markus Schaffner & Benno Torgler & Stephen Whyte, 2016. "External Influence as an Indicator of Scholarly Importance," CESifo Economic Studies, CESifo, vol. 62(1), pages 170-195.
    3. Chan, Ho Fai & Frey, Bruno S. & Gallus, Jana & Torgler, Benno, 2014. "Academic honors and performance," Labour Economics, Elsevier, vol. 31(C), pages 188-204.
    4. Jana Gallus, 2016. "Fostering Voluntary Contributions to a Public Good: A Large-Scale Natural Field Experiment at Wikipedia," Natural Field Experiments 00552, The Field Experiments Website.

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    Keywords

    Awards; prizes; incentives; signaling theory; principal-agent framework;

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