A Behavioral Explanation of the Relative Performance Evaluation Puzzle

15 Pages Posted: 15 Nov 2002

See all articles by Chaim Fershtman

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute

Yoram Weiss

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Date Written: November 13, 2002

Abstract

We study the effects of competitive preferences, where Chief Executive Officers (CEOs) compare their wage to the wage of other CEOs within the same industry, and derive utility from being ahead of them. We show that such social concerns work in the direction of CEO wages being positively correlated, in contrast to the Relative Performance Evaluation hypothesis, but consistent with several empirical studies.

Suggested Citation

Fershtman, Chaim and Weiss, Yoram and Hvide, Hans, A Behavioral Explanation of the Relative Performance Evaluation Puzzle (November 13, 2002). Available at SSRN: https://ssrn.com/abstract=326180 or http://dx.doi.org/10.2139/ssrn.326180

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7167 (Phone)
+972 3 640 9908 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Yoram Weiss

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9715 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

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

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

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

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