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A behavioral Explanation for the Relative Performance Evaluation Puzzle

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  • Chaim Fershtman
  • Hans K. Hvide
  • Yoram Weiss

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

  • Chaim Fershtman & Hans K. Hvide & Yoram Weiss, 2003. "A behavioral Explanation for the Relative Performance Evaluation Puzzle," Annals of Economics and Statistics, GENES, issue 71-72, pages 317-345.
    • Handle: RePEc:adr:anecst:y:2003:i:71-72:p:317-345
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    Citations

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    Cited by:

    1. Kräkel, Matthias, 2016. "Peer effects and incentives," Games and Economic Behavior, Elsevier, vol. 97(C), pages 120-127.
    2. Kaniel, Ron & DeMarzo, Peter, 2016. "Relative Pay for Non-Relative Performance: Keeping up with the Joneses with Optimal Contracts," CEPR Discussion Papers 11538, C.E.P.R. Discussion Papers.
    3. Ramalingam, Abhijit, 2009. ""Endogenous" Relative Concerns: The Impact of Workers' Characteristics on Status and Pro ts in the Firm," MPRA Paper 18759, University Library of Munich, Germany.
    4. Pradeep Dubey & John Geanakoplos & Ori Haimanko, 2013. "Prizes Versus Wages With Envy And Pride," The Japanese Economic Review, Japanese Economic Association, vol. 64(1), pages 98-121, March.
    5. Felix Kölle & Dirk Sliwka & Nannan Zhou, 2016. "Heterogeneity, inequity aversion, and group performance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(2), pages 263-286, February.
    6. Göx, Robert F. & Hemmer, Thomas, 2020. "On the relation between managerial power and CEO pay," Journal of Accounting and Economics, Elsevier, vol. 69(2).
    7. Demougin, Dominique & Upton, Harvey, 2023. "Relative income concerns and the Easterlin Paradox: A theoretical framework," Economic Modelling, Elsevier, vol. 127(C).
    8. Kopel, Michael & Petrakis, Emmanuel & Ressi, Anna, 2019. "Endogenous scope of firm-union bargaining with vertical pay comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 39-52.
    9. Markus Brunner & Kai Sandner, 2012. "Social comparison, group composition, and incentive provision," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 565-602, August.
    10. Tomer Blumkin & David Lagziel, 2019. "Relative Ambition And The Role Of Wage Secrecy In Labor Contracts," Working Papers 1902, Ben-Gurion University of the Negev, Department of Economics.
    11. Ederer, Florian & Patacconi, Andrea, 2010. "Interpersonal comparison, status and ambition in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 348-363, August.
    12. Bartling, Björn, 2011. "Relative performance or team evaluation? Optimal contracts for other-regarding agents," Journal of Economic Behavior & Organization, Elsevier, vol. 79(3), pages 183-193, August.
    13. Stracke, Rudi & Hörtnagl, Tanja & Kerschbamer, Rudolf, 2016. "Competing for Market Shares: Why the Order of Moves Matters Even When It Shouldn't," VfS Annual Conference 2016 (Augsburg): Demographic Change 145532, Verein für Socialpolitik / German Economic Association.
    14. Kräkel, Matthias, 2008. "Emotions in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 204-214, July.

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