We analyze how inequity aversion interacts with incentive provision in an otherwise standard moral hazard model with two risk averse agents. We find that behindness aversion (suffering only when being worse off) among agents unambiguously increases agency costs of providing incentives. This holds true if agents also suffer from being better off unless they account for effort costs in their comp...

Market share objectives are prominent in many industries, especially where managers pay much attention to league table rankings. This paper explores the strategic rationale for giving managers incentives based on market share, motivated by evidence from executive compensation practice in the automotive and investment banking industries. Strategic incentives for market share dominate the well-kn...

Social Interactions and the Salience of Social Identity In this paper, we explore the effect of identity salience on behavior in a simple social interaction. Specifically, we compare behavior in a ultimatum game across three treatments: priming subjects with a shared identity, priming subjects with an identity distinct from those with whom they will interact, and priming subjects with no partic...

Wages or Fringes? Some Evidence on Trade-offs and Sorting The two key predictions of hedonic wage theory are that there is a trade-off between wages and nonmonetary rewards and that the latter can be used as a sorting device by firms to attract and retain the kind of employees they desire. Empirical analysis of these topics are scarce as they require detailed data on all monetary as well as non...

We analyze experimentally the role of vertical and horizontal fairness in labor relations with implicit contracts. We focus on two prominent wage schemes in firms with more than one agent: wage equality as an extreme form of wage compression and individual wage setting. We find that efforts and efficiency are significantly higher under individual wages. This is not caused by differences in mone...

Envy and Compassion in Tournaments Many experiments indicate that most individuals are not purely motivated by material self interest, but also care about the well being of others. In this paper we examine tournaments among inequity averse agents, who dislike disadvantageous inequity (envy) and advantageous inequity (compassion). It turns out that inequity averse agents exert higher effort leve...

Mentoring and Segregation: Female-Led Firms and Gender Wage Policies We explore the impact of mentoring of females and gender segregation on wages using a large longitudinal data set for Portugal. Female managers can protect and mentor female employees by paying them higher wages than male-led firms would do. We find that females can enjoy higher wages in female-led firms, the opposite being tr...

Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests This paper shows that the incentive effects of heterogeneity may be positive rather than negative in dynamic contests with multiple stages. In particular, the well-studied adverse effects of heterogeneity in static interactions are compensated by positive continuation-value and selection effects. Due to these positive ...

Everyone is a Winner: Promoting Cooperation through All-Can-Win Intergroup Competition We test if cooperation is promoted by rank-order competition between groups in which all groups can be ranked first, i.e. when everyone can be a winner. This type of rank-order competition has the advantage that it can eliminate the negative externality a group’s performance imposes on other groups. However, ...

Market wages re ect expected productivity, making use of signals of past performance and past experience. These signals are generated at least partially on the job, creating incentives for agents to choose high pro le and highly visible tasks. When agents have private information about the profitability of di erent tasks, rms may wish to prevent over-investment in those that entail signaling, b...