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Games of status and discriminatory contracts

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Dhillon, Amrita and Hertzog-Stein, Alexander. (2009) Games of status and discriminatory contracts. Games and economic behavior, Vol.65 (No.1). pp. 105-123. ISSN 0899-8256

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Official URL: http://dx.doi.org/10.1016/j.geb.2008.03.009

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.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Employee incentives, Moral hazard -- Mathematical models, Simulation games
Journal or Publication Title:	Games and economic behavior
Publisher:	Elsevier
ISSN:	0899-8256
Date:	January 2009
Volume:	Vol.65
Number:	No.1
Page Range:	pp. 105-123
Identification Number:	10.1016/j.geb.2008.03.009
Status:	Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC), University of Warwick
References:	Baron, J.N. (1988). The employment relation as a social relation. Journal of the Japanese and International Economies, 2, pp.492-525. Brown, G.A. [et al.] (2003). Rank dependence in employees' wellbeing. Mimeo, August 2003. Dhillon, A. and Herzog-Stein, A. (2006). Games of status and discriminatory contracts. University of Warwick Discussion Paper TWERPS No.743. Dubey, P. and Geanakoplos, J. (2004). Grading exams: 100; 99; :::; 1 or A, B, C?: Incentives in games of status. Cowles Foundation Discussion Paper No. 1467 (July). Fehr, E. and Schmidt, K.M. (1999) A theory of fairness, competition, and cooperation. Quarterly Journal of Economics, 114(3), pp.817-868. Frank, R.H. (1984). Interdependent preferences and the competitive wage structure. RAND Journal of Economics, 15(4), pp.510-520. Itoh, H. (2004) Moral hazard and other-regarding preferences. Japanese Economic Review, 55(1) March, pp.18-45. Lafont, J.-J. and Martimort, D. (2002). The Theory of incentives: the principal-agent model. Princeton: Princton University Press. Neilson, W.S. and Stowe, J. (2004). Incentive pay for other-regarding workers. Mimeo, February 2004. Shubik, M. (1971). Games of status. Behavioral Sciences, 16(2), pp.117-129. Winter, A. (2004). Incentives and discrimination. American Economic Review, 94(3), pp.764-773.
URI:	http://wrap.warwick.ac.uk/id/eprint/10