Dhillon, Amrita and Hertzog-Stein, Alexander (2006) Games of status and discriminatory contracts. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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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. Workers’ concern for the rank of their wage in the firm’s wage distribution may induce the firm to offer discriminatory wage contracts when its aim is to induce all workers to expend effort.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HM Sociology
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Social status, Employee competitive behavior, Labor laws and legislation, Wages -- Mathematical models, Utility theory -- Mathematical models, Game theory
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	16 April 2006
Number:	No.759
Number of Pages:	46
Status:	Not Peer Reviewed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., Jonathan Gardner, Andrew Oswald, and Jing Qian (2003) ‘Rank dependence in employees’ wellbeing.’ mimeo Dubey, P., and J. Geanakoplos (2004) ‘Grading exams: 100, 99, ..., 1 or A, B, C?: Incentives in games of status.’ Cowles Foundation Discussion Paper No. 1467 Fehr, E., and K. M. Schmidt (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), pp. 18–45 Laffont, J.-J., and D. Martimort (2002) The Theory of Incentives: The Principal-Agent Model (Princton: Princton University Press) Neilson, W. S., and J. Stowe (2004) ‘Incentive pay for other-regarding workers.’ mimeo 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/1439

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