First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision

44 Pages Posted: 4 Sep 2015

See all articles by David Gill

David Gill

Purdue University, Department of Economics

Zdenka Kissova

PriceWaterhouseCoopers LLP

Jaesun Lee

Cornell University - Department of Economics

Victoria L. Prowse

Purdue University - Department of Economics; IZA Institute of Labor Economics; German Institute for Economic Research (DIW Berlin)

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Abstract

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

Suggested Citation

Gill, David and Kissova, Zdenka and Lee, Jaesun and Prowse, Victoria L., First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision. Available at SSRN: https://ssrn.com/abstract=2655326 or http://dx.doi.org/10.2139/ssrn.2655326

David Gill (Contact Author)

Purdue University, Department of Economics ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Zdenka Kissova

PriceWaterhouseCoopers LLP ( email )

1301 Avenue of the Americas
New York, NY 10019
United States

Jaesun Lee

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Victoria L. Prowse

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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