Awards - the Neglected Incentives

Institute for Empirical Research in Economics Working Paper No. 254

14 Pages Posted: 26 Jan 2006

See all articles by Bruno S. Frey

Bruno S. Frey

CREMA; University of Basel

Susanne Neckermann

University of Zurich - Department of Economics

Date Written: January 2006

Abstract

The standard principal agent model considers monetary incentives only. It is assumed that money is more efficient than other forms of material, non-monetary compensation. Awards in the form of titles, orders, medals and honors (prizes) - though almost omnipresent - have so far escaped the attention of economists. They present extrinsic, non-monetary incentives that operate through the innate desire of human beings for recognition and status. In this paper, we analyze the differences between monetary incentives and awards: in general, awards are cheap, lead to interpersonal relationships, are not directly related to performance and have a signaling value. In addition, they support intrinsic motivation, may increase social welfare and are exempt from taxation. Awards present an important additional instrument to be considered in principal agent theory. In many contexts they are superior to monetary compensation.

Note: Downloadable document is in German.

Keywords: incentives, motivation, non-monetary compensation, awards, orders

JEL Classification: A13, D02, D23, H23, J33, M52

Suggested Citation

Frey, Bruno S. and Neckermann, Susanne, Awards - the Neglected Incentives (January 2006). Available at SSRN: https://ssrn.com/abstract=878088 or http://dx.doi.org/10.2139/ssrn.878088

Bruno S. Frey

CREMA ( email )

Südstrasse 11
Zurich, CH 8008
Switzerland
+41 44 380 00 78 (Phone)

University of Basel ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

Susanne Neckermann (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

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