IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimal Group Incentives with Social Preferences and Self-Selection

  • Sabrina Teyssier

    ()

    (GATE CNRS)

In this paper, we analyze group incentives when a proportion of agents feel in- equity aversion as defined by Fehr and Schmidt (1999). We define a separating equilibrium that explains the co-existence of multiple payment schemes in firms. We show that a tournament provides strong incentives to agents who only care about their own payo¤ but that it is not efficient when agents are inequity averse. In fact, inequity averse agents are attracted by a revenue-sharing scheme in which the joint production is equally distributed, under the constraint that selfish agents have no incentive to join the revenue sharing organization. If the market is perfectly flexi- ble, this separating equilibrium induces a high effort level for both types of agents. Pareto gains are achieved by offering organizational choice to agents and the optimal contract is thus to propose both payment schemes to agents and to allow them to self-select into the different payment schemes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://ftp.gate.cnrs.fr/RePEc/2007/0710.pdf
Download Restriction: no

Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0710.

as
in new window

Length: 35 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:gat:wpaper:0710
Contact details of provider: Postal: 93, chemin des Mouilles - B.P.167 69131 - Ecully cedex
Phone: 33(0)472 29 30 89
Fax: 33(0)47229 30 90
Web page: http://www.gate.cnrs.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Nalbantian, Haig R & Schotter, Andrew, 1997. "Productivity under Group Incentives: An Experimental Study," American Economic Review, American Economic Association, vol. 87(3), pages 314-41, June.
  2. Imran Rasul & Iwan Barankay & Orana Bandiera, 2005. "Social preferences and the response to incentives: Evidence from personnel data," Natural Field Experiments 00212, The Field Experiments Website.
  3. Margin Dufwenberg & Georg Kirchsteiger, 2001. "A Theory of Sequential Reciprocity," Levine's Working Paper Archive 563824000000000090, David K. Levine.
  4. KOHLBERG, Elon & MERTENS, Jean-François, . "On the strategic stability of equilibria," CORE Discussion Papers RP -716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Michael Kosfeld & Ferdinand von Siemens, 2007. "Competition, Cooperation, and Corporate Culture," IEW - Working Papers 328, Institute for Empirical Research in Economics - University of Zurich.
  6. Urs Fischbacher & Simon Gaechter, 2006. "Heterogeneous social preferences and the dynamics of free riding in public goods," Discussion Papers 2006-01, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  7. Armin Falk & Urs Fischbacher, 2001. "A Theory of Reciprocity," CESifo Working Paper Series 457, CESifo Group Munich.
  8. Ernst Fehr & Urs Fischbacher, 2002. "Why Social Preferences Matter -- The Impact of Non-Selfish Motives on Competition, Cooperation and Incentives," Economic Journal, Royal Economic Society, vol. 112(478), pages C1-C33, March.
  9. Simon Gächter & Christian Thöni, 2005. "Social Learning and Voluntary Cooperation Among Like-Minded People," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 303-314, 04/05.
  10. Antonio Cabrales & Antoni Calvo-Armengol, 2007. "Interdependent preferences and segregating equilibria," Economics Working Papers we072313, Universidad Carlos III, Departamento de Economía.
  11. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  13. Stark, Oded, 1987. "The design of reward structures in career games : A relative deprivation approach," Economics Letters, Elsevier, vol. 25(4), pages 389-392.
  14. Charles Bellemare & Bruce S. Shearer, 2006. "Sorting, Incentives and Risk Preferences: Evidence from a Field Experiment," Cahiers de recherche 0631, CIRPEE.
  15. Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
  16. Engelmann Dirk & Strobel Martin, 2002. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," Research Memorandum 015, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  17. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
  18. Mui, Vai-Lam, 1995. "The economics of envy," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 311-336, May.
  19. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  20. Dominique Demougin & Claude Fluet, 2003. "Inequity Aversion in Tournament," CIRANO Working Papers 2003s-18, CIRANO.
  21. Christian Grund & Dirk Sliwka, 2002. "Envy and Compassion in Tournaments," Bonn Econ Discussion Papers bgse32_2002, University of Bonn, Germany.
  22. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
  23. Geir B. Asheim & Martin Dufwenberg, 2003. "Deductive Reasoning in Extensive Games," Economic Journal, Royal Economic Society, vol. 113(487), pages 305-325, 04.
  24. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  25. Pedro Rey-Biel, 2007. "Inequity Aversion and Team Incentives," Working Papers 319, Barcelona Graduate School of Economics.
  26. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  27. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  28. Cooper, Russell & De Jong, Douglas V. & Forsythe, Robert & Ross, Thomas W., 1992. "Forward induction in coordination games," Economics Letters, Elsevier, vol. 40(2), pages 167-172, October.
  29. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2002. "Strong Belief and Forward Induction Reasoning," Journal of Economic Theory, Elsevier, vol. 106(2), pages 356-391, October.
  30. Roberto Burlando & Francesco Guala, 2005. "Heterogeneous Agents in Public Goods Experiments," Experimental Economics, Springer, vol. 8(1), pages 35-54, April.
  31. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  32. Ehrhart, Karl-Martin & Keser, Claudia, 1999. "Mobility and cooperation: on the run," Sonderforschungsbereich 504 Publications 99-69, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  33. Karl-Martin Ehrhart & Claudia Keser, 1999. "Mobility and Cooperation: On the Run," CIRANO Working Papers 99s-24, CIRANO.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:gat:wpaper:0710. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nelly Wirth)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.