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

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  1. Florian Englmaier & Achim Wambach, 2002. "Contracts and Inequity Aversion," CESifo Working Paper Series 809, CESifo Group Munich.
  2. repec:oup:qjecon:v:114:y:1999:i:3:p:817-868 is not listed on IDEAS
  3. Christian Grund & Dirk Sliwka, 2002. "Envy and Compassion in Tournaments," Bonn Econ Discussion Papers bgse32_2002, University of Bonn, Germany.
  4. 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.
  5. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  6. 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.
  7. Frank, Robert H., 1993. "Choosing the Right Pond: Human Behavior and the Quest for Status," OUP Catalogue, Oxford University Press, number 9780195049459, July.
  8. Bartling, Björn & Siemens, Ferdinand von, 2006. "The Intensity of Incentives in Firms and Markets: Moral Hazard with Envious Agents," Discussion Papers in Economics 913, University of Munich, Department of Economics.
  9. repec:adr:anecst:y:2001:i:63-64:p:15 is not listed on IDEAS
  10. 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.
  11. Hideshi Itoh, 2004. "Moral Hazard and Other-Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45.
  12. repec:adr:anecst:y:2003:i:71-72:p:13 is not listed on IDEAS
  13. 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.
  14. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  15. Georg Kirchsteiger, 1994. "The role of envy in ultimatum games," ULB Institutional Repository 2013/5925, ULB -- Universite Libre de Bruxelles.
  16. 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).
  17. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, vol. 66(3), pages 309-20, June.
  18. 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.
  19. 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.
  20. 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.
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