Status Competition and Performance in Work Groups

Abstract:     
Status involves group members evaluating themselves relative to fellow group members according to some shared standard of value. Status has been described in economics, sociology and evolutionary anthropology. Based on this work, we treat status and the associated recognition by others as an intrinsic preference of all group members. There is disagreement about whether status competition enhances group performance by pushing group members to work harder, or whether it retards performance by causing unproductive behavior.

We build a dynamic simulation model of a work group, where members are paid a bonus based on group performance. In addition to compensation, group members value a high status relative to their peers. Status is influenced both by contribution to group output and by non-productive, social activities of status enhancement. Group members allocate their total time between working and non-productive status enhancement, trying to maximize the combined utility from compensation and status rank.

We show that status competition can serve to push group members to work hard and perform, provided that it is mainly based on merit. However, if status is also based on political maneuvering, status competition can lead to low group performance, especially in larger groups. Moreover, group performance may fluctuate and be unstable over time if the result of effort is noisy or if the group does not allow the sharing of ranks. The susceptibility to fluctuation depends on how status is awarded and updated over time. Thus, although a firm may not be able to avoid status competition, it may succeed in influencing its effects indirectly. We demonstrate these results analytically and via simulation.

Number of Pages in PDF File: 30

JEL Classification: J50

working papers series