Interpersonal Comparison, Status and Ambition in Organizations

University of Oxford Economics Discussion Paper No. 222

Journal of Economic Behavior and Organization, Vol. 75, No. 2, 2010

37 Pages Posted: 21 Apr 2005 Last revised: 8 Jul 2017

See all articles by Florian Ederer

Florian Ederer

Yale School of Management; Yale University - Cowles Foundation

Andrea Patacconi

University of East Anglia (UEA) - Norwich Business School

Date Written: March 1, 2010

Abstract

This paper shows that introducing status concerns into a tournament model has substantial implications for the provision of incentives. We emphasize the role of reference groups and determine the optimal number of winners and losers in tournaments. To compensate employees for the disutility of low status, a profit-maximizing employer may be reluctant to demote employees and instead reward workers through promotions. This rationalizes the prevalence of compensation systems which reward winners without explicitly identifying losers. Differences in ambition and ability affect contestants' efforts and may result in inefficient promotion outcomes. We analyze how to mitigate these inefficiencies when managing a diverse workforce by using mixed and segregated tournaments.

Keywords: Reference-Dependent Preferences, Status, Ambition, Tournaments

JEL Classification: J31, J41

Suggested Citation

Ederer, Florian and Patacconi, Andrea, Interpersonal Comparison, Status and Ambition in Organizations (March 1, 2010). University of Oxford Economics Discussion Paper No. 222, Journal of Economic Behavior and Organization, Vol. 75, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=691381

Florian Ederer (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/florianederer/

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Andrea Patacconi

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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