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Games of status and discriminatory contracts

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  • Dhillon, Amrita
  • Herzog-Stein, Alexander

Abstract

Following recent empirical evidence which indicates the importance of rank for the determination of workers' wellbeing, this paper introduces status seeking preferences in the form of rank-dependent utility functions into a moral-hazard framework with one firm and multiple workers, but no correlation in production. We show that workers' concern for the rank of their wage in the firm's wage distribution induces the firm to offer discriminatory wage contracts when its aim is to induce all workers to expend effort.

Suggested Citation

  • Dhillon, Amrita & Herzog-Stein, Alexander, 2009. "Games of status and discriminatory contracts," Games and Economic Behavior, Elsevier, vol. 65(1), pages 105-123, January.
    • Handle: RePEc:eee:gamebe:v:65:y:2009:i:1:p:105-123
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    References listed on IDEAS

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    1. Hideshi Itoh, 2004. "Moral Hazard and Other‐Regarding Preferences," The Japanese Economic Review, Japanese Economic Association, vol. 55(1), pages 18-45, March.
    2. Eyal Winter, 2004. "Incentives and Discrimination," American Economic Review, American Economic Association, vol. 94(3), pages 764-773, June.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    4. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute of Labor Economics (IZA).
    5. Dhillon, Amrita & Herzog-Stein, Alexander, 2009. "Games of status and discriminatory contracts," Games and Economic Behavior, Elsevier, vol. 65(1), pages 105-123, January.
    6. Baron, James N., 1988. "The employment relation as a social relation," Journal of the Japanese and International Economies, Elsevier, vol. 2(4), pages 492-525, December.
    7. Pradeep Dubey & John Geanakoplos, 2004. "Grading Exams: 100, 99, ..., 1 or A, B, C? Incentives in Games of Status," Cowles Foundation Discussion Papers 1467, Cowles Foundation for Research in Economics, Yale University.
    8. Robert H. Frank, 1984. "Interdependent Preferences and the Competitive Wage Structure," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 510-520, Winter.
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    Citations

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    Cited by:

    1. Cardoso, Ana Rute, 2012. "Money and rank in the labor market," Economics Letters, Elsevier, vol. 115(2), pages 325-328.
    2. Rosner, Shaul & Tamir, Tami, 2023. "Scheduling games with rank-based utilities," Games and Economic Behavior, Elsevier, vol. 140(C), pages 229-252.
    3. Dhillon, Amrita & Herzog-Stein, Alexander, 2009. "Games of status and discriminatory contracts," Games and Economic Behavior, Elsevier, vol. 65(1), pages 105-123, January.
    4. López-Pintado, Dunia & Moreno-Ternero, Juan D., 2014. "On discrimination in the optimal management of teams," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 154-162.
    5. Dunia López-Pintado & Juan D. Moreno-Ternero, 2011. "On the optimal management of teams under budget constraints," Working Papers 11.11, Universidad Pablo de Olavide, Department of Economics.
    6. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Status and incentives: A critical survey," MPRA Paper 57658, University Library of Munich, Germany.
    7. Oindrila Dey & Swapnendu Banerjee, 2022. "Incentives, Status and Thereafter: A Critical Survey," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 95-115, June.
    8. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    9. Dey, Oindrila & Banerjee, Swapnendu, 2015. "Endogenous favouritism with status incentives: A model of optimum inefficiency," MPRA Paper 62828, University Library of Munich, Germany.
    10. Mamadou L Gueye & Nicolas Quérou & Raphaël Soubeyran, 2021. "Inequality Aversion and the Distribution of Rewards in Organizations," Working Papers hal-03134262, HAL.
    11. Dey, Oindrila & Banerjee, Swapnendu, 2014. "Incentives and status," MPRA Paper 58399, University Library of Munich, Germany.
    12. Tom Truyts, 2010. "Social Status In Economic Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 137-169, February.
    13. Oindrila Dey, 2018. "Leniency, Status and Output Informativeness," Review of Market Integration, India Development Foundation, vol. 10(1), pages 1-18, April.
    14. 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.
    15. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Social Comparison in Games of Status," Levine's Bibliography 122247000000001183, UCLA Department of Economics.
    16. Raja Kali & David Pastoriza & Jean‐François Plante, 2018. "The burden of glory: Competing for nonmonetary incentives in rank‐order tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(1), pages 102-118, March.

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