Fairness and Desert in Tournaments

34 Pages Posted: 15 Oct 2009 Last revised: 30 Dec 2010

David Gill

Purdue University

Rebecca Stone

UCLA School of Law

Date Written: October 6, 2009

Abstract

We model the behavior of agents who care about receiving what they feel they deserve in a two-player rank-order tournament. Perceived entitlements are sensitive to how hard an agent has worked relative to her rival, and agents are loss averse around their meritocratically determined endogenous reference points. In a fair tournament sufficiently large desert concerns drive identical agents to push their effort levels apart in order to end up closer to their reference points on average. In an unfair tournament, where one agent is advantaged, the equilibrium is symmetric in the absence of desert, but asymmetric in the presence of desert. We find that desert concerns can undermine the standard conclusion that competition for a fixed supply of status is socially wasteful and explain why, when the distribution of output noise is fat-tailed, an employer might use a rank-order incentive scheme.

Keywords: Desert, Equity, Tournament, Loss Aversion, Reference-Dependent Preferences, Reference Point, Psychological Game Theory, Status, Relative Performance Evaluation

JEL Classification: D63, J33

Suggested Citation

Gill, David and Stone, Rebecca, Fairness and Desert in Tournaments (October 6, 2009). Games and Economic Behavior, Vol. 69, No. 2, pp. 346-364, 2010. Available at SSRN: https://ssrn.com/abstract=1488185 or http://dx.doi.org/10.2139/ssrn.1488185

David Gill (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Rebecca Stone

UCLA School of Law ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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