IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/58399.html
   My bibliography  Save this paper

Incentives and status

Author

Listed:
  • Dey, Oindrila
  • Banerjee, Swapnendu

Abstract

This paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. With the help of a moral hazard framework with limited liability we show that for agents with lower outside option increased status leads to lower incentive pay whereas exactly the opposite happens for agents with higher outside option. For agents with very high status such that the limited liability doesn’t bind, an exogenous increase in status level leads to an unambiguous decrease in optimal incentive payment.

Suggested Citation

  • Dey, Oindrila & Banerjee, Swapnendu, 2014. "Incentives and status," MPRA Paper 58399, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58399
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/58399/1/MPRA_paper_58399.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
    2. 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.
    3. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    4. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    6. Dhillon, Amrita & Herzog-Stein, Alexander, 2009. "Games of status and discriminatory contracts," Games and Economic Behavior, Elsevier, vol. 65(1), pages 105-123, January.
    7. Timothy Besley & Maitreesh Ghatak, 2005. "Competition and Incentives with Motivated Agents," American Economic Review, American Economic Association, vol. 95(3), pages 616-636, June.
    8. Emmanuelle Auriol & Régis Renault, 2008. "Status and incentives," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 305-326, March.
    9. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    10. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    11. Roland Bénabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(3), pages 489-520.
    12. Swapnendu Banerjee, 2013. "Gestational Surrogacy Contracts: Altruistic Or Commercial? A Contract Theoretic Approach," Manchester School, University of Manchester, vol. 81(3), pages 438-460, June.
    13. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
    14. Pradeep Dubey & John Geanakoplos, 2004. "Grading Exams: 100, 99, ..., 1 or A, B, C? Incentives in Games of Status," Cowles Foundation Discussion Papers 1467, Cowles Foundation for Research in Economics, Yale University.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sung Hoon Chung & Robert D. Weaver & Hyun Woo Jeon, 2020. "Sustainable Management of Remanufacturing in Dynamic Supply Chains," Networks and Spatial Economics, Springer, vol. 20(3), pages 703-731, September.
    2. Juha‐Antti Lamberg & Mirva Peltoniemi, 2020. "The nanoeconomics of firm‐level decision‐making and industry evolution: Evidence from 200 years of paper and pulp making," Strategic Management Journal, Wiley Blackwell, vol. 41(3), pages 499-529, March.
    3. Teixeira, Sérgio & Pocinho, Margarida, 2020. "Hotel Industry And Regional Competitiveness: The Bibliometric Perspective Of Web Of Science," Journal of Tourism, Sustainability and Well-being, Cinturs - Research Centre for Tourism, Sustainability and Well-being, University of Algarve, vol. 8(2), pages 129-147.
    4. Arzum Akkaş & Nachiketa Sahoo, 2020. "Reducing Product Expiration by Aligning Salesforce Incentives: A Data‐driven Approach," Production and Operations Management, Production and Operations Management Society, vol. 29(8), pages 1992-2009, August.
    5. Oindrila Dey & Swapnendu Banerjee, 2022. "Incentives, Status and Thereafter: A Critical Survey," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 95-115, June.
    6. Sultan Sikandar Mirza & Tanveer Ahsan, 2020. "Corporates' strategic responses to economic policy uncertainty in China," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 375-389, February.
    7. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Status and incentives: A critical survey," MPRA Paper 57658, University Library of Munich, Germany.
    8. Zheng, Xiao-Xue & Li, Deng-Feng & Liu, Zhi & Jia, Fu & Sheu, Jiuh-Biing, 2019. "Coordinating a closed-loop supply chain with fairness concerns through variable-weighted Shapley values," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 126(C), pages 227-253.
    9. Jiang Cheng & J. David Cummins & Tzuting Lin, 2021. "Are all mutuals the same? Evidence from CEO turnover in the US property–casualty insurance industry," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(2), pages 175-205, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Oindrila Dey & Swapnendu Banerjee, 2022. "Incentives, Status and Thereafter: A Critical Survey," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 95-115, June.
    2. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Status and incentives: A critical survey," MPRA Paper 57658, University Library of Munich, Germany.
    3. Oindrila Dey & Swapnendu Banerjee, 2019. "‘Incentive conscious’ agents and moral hazard," Indian Economic Review, Springer, vol. 54(1), pages 149-169, June.
    4. Oindrila Dey, 2018. "Leniency, Status and Output Informativeness," Review of Market Integration, India Development Foundation, vol. 10(1), pages 1-18, April.
    5. Oindrila Dey & Swapnendu Banerjee, 2014. "Status Incentives with Discrete Effort: A Note," Economics Bulletin, AccessEcon, vol. 34(2), pages 1205-1213.
    6. Dey, Oindrila & Banerjee, Swapnendu, 2015. "Endogenous favouritism with status incentives: A model of optimum inefficiency," MPRA Paper 62828, University Library of Munich, Germany.
    7. Ed Hopkins, 2008. "Inequality, happiness and relative concerns: What actually is their relationship?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 6(4), pages 351-372, December.
    8. Woo Chang Kang & Jae Seung Lee & BK Song, 2020. "Envy and Pride: How Economic Inequality Deepens Happiness Inequality in South Korea," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 150(2), pages 617-637, July.
    9. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    10. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    11. Mujcic, Redzo & Frijters, Paul, 2015. "Conspicuous consumption, conspicuous health, and optimal taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 59-70.
    12. Axel Ockenfels & Dirk Sliwka & Peter Werner, 2015. "Bonus Payments and Reference Point Violations," Management Science, INFORMS, vol. 61(7), pages 1496-1513, July.
    13. Diriwaechter, Patric & Shvartsman, Elena, 2018. "The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 116-140.
    14. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    15. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    16. Korthals, R.A., 2012. "Selection and tracking in secondary education: a cross country analysis of student performance and educational opportunities," ROA Research Memorandum 014, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    17. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    18. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    19. Yamada, Katsunori & Sato, Masayuki, 2013. "Another avenue for anatomy of income comparisons: Evidence from hypothetical choice experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 35-57.
    20. Felix FitzRoy & Michael Nolan & Max Steinhardt & David Ulph, 2014. "Testing the tunnel effect: comparison, age and happiness in UK and German panels," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-30, December.

    More about this item

    Keywords

    Status; incentives; motivation; moral hazard; optimal contract;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:58399. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.