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Prizes versus Wages with Envy and Pride

  • Pradeep K. Dubey

    (Center for Game Theory, Department of Economics, SUNY at Stony Brook, Stony Brook, NY 11794, Cowles Foundation for Research in Economics, Yale University)

  • John Geanakoplos

    ()

    (Cowles Foundation, Yale University)

  • Ori Haimanko

    (Department of Economics, Ben-Gurion University of the Negev)

We show that if agents are risk neutral, prizes outperform wages when 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://cowles.econ.yale.edu/P/cd/d15a/d1537.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1537.

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Length: 25 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cwl:cwldpp:1537
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Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Pedro Rey-Biel, 2007. "Inequity Version and Team Incentives," UFAE and IAE Working Papers 677.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. 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.
  3. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  4. Grund, Christian & Sliwka, Dirk, 2002. "Envy and Compassion in Tournaments," IZA Discussion Papers 647, Institute for the Study of Labor (IZA).
  5. 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.
  6. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  7. Florian Englmaier & Achim Wambach, 2002. "Contracts and Inequity Aversion," CESifo Working Paper Series 809, CESifo Group Munich.
  8. 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.
  9. Georg Kirchsteiger, 1994. "The role of envy in ultimatum games," ULB Institutional Repository 2013/5925, ULB -- Universite Libre de Bruxelles.
  10. Alexis DIRER, 2001. "Interdependent Preferences and Aggregate Saving," Annales d'Economie et de Statistique, ENSAE, issue 63-64, pages 297-308.
  11. Frank, Robert H., 1993. "Choosing the Right Pond: Human Behavior and the Quest for Status," OUP Catalogue, Oxford University Press, number 9780195049459, March.
  12. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  13. 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.
  14. Chaim FERSHTMAN & Hans K. HVIDE & Yoram WEISS, 2003. "A behavioral Explanation for the Relative Performance Evaluation Puzzle," Annales d'Economie et de Statistique, ENSAE, issue 71-72, pages 349-361.
  15. 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.
  16. 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.
  17. 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.
  18. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
  19. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
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