Interpersonal comparison, status and ambition in organizations

Florian Ederer, Andrea Patacconi

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

This paper shows that introducing status concerns into a tournament model has substantial implications for the provision of incentives. We emphasize the role of reference groups and determine the optimal number of winners and losers in tournaments. To compensate employees for the disutility of low status, a profit-maximizing employer may be reluctant to demote employees and instead reward workers through promotions. This rationalizes the prevalence of compensation systems which reward winners without explicitly identifying losers. Differences in ambition and ability affect contestants’ efforts and may result in inefficient promotion outcomes. We analyze how to mitigate these inefficiencies when managing a diverse workforce by using mixed and segregated tournaments.
Original languageEnglish
Pages (from-to)348-363
Number of pages16
JournalJournal of Economic Behavior and Organization
Volume75
Issue number2
Early online date31 Mar 2010
DOIs
Publication statusPublished - Aug 2010

Keywords

  • reference-dependent preferences
  • status
  • ambition
  • tournaments

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