First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision
44 Pages Posted: 4 Sep 2015
Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit 'first-place loving' and 'last-place loathing', that is subjects increase their effort the most after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes.
Keywords: relative performance evaluation, relative performance feedback, rank order feedback, dynamic effort provision, real effort experiment, flat wage, fixed wage, taste for rank, status seeking, social esteem, self esteem, public feedback, private feedback
JEL Classification: C23, C91, J22, M12
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