Fairness Within Firms: The Case of One Principal and Multiple Agents

Güth, Werner; Königstein, Manfred; Kovács, Judit; Zala-Mezö, Enikö

doi:10.1007/bf03396629

Cited by 77 publications

(63 citation statements)

References 20 publications

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“…In other words, firms anticipate a negative effect from income comparisons on effort that is not actually observed in workers' behavior. This wage compression effect was also found by Güth, Königstein, Kovacs and Zala-Mezo (2001) in a game in which information about the contracts offered to each employee was manipulated. They show that principals tend to reduce the income differential between agents when contract information is made public.…”

mentioning

confidence: 55%

Effort and Comparison Income: Experimental and Survey Evidence

Clark¹,

Masclet²,

Villeval³

2010

ILR Review

163

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This paper considers the effect of status or relative income on work effort, combining experimental evidence from a gift-exchange game with the analysis of multi-country ISSP survey data. We find a consistent negative effect of others' incomes on individual effort in both datasets. The individual's rank in the income distribution is a stronger determinant of effort than is others' average income, suggesting that comparisons are more ordinal than cardinal. In the experiment, effort is also affected by comparisons over time: those who received higher income offers or enjoyed higher income rank in the past exert lower levels of effort for a given current income and rank.

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mentioning

confidence: 55%

Effort and Comparison Income: Experimental and Survey Evidence

Clark¹,

Masclet²,

Villeval³

2010

ILR Review

163

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“…Knez and Camerer (1995) show experimentally that people apply different benchmarks for comparison when they have different outside options. Linda Babcock, Xianghong Wang, and Loewenstein (1996) provide empirical evidence for such a self-serving bias in teacher contract negotiations (see also Anand M. Goel and Anjan V. Thakor, 2005 for how optimal contract design could change as a result of peer-induced fairness effect and Werner Guth et. al, 2001 for a nice discussion on a similar issue).…”

Section: Union Negotiationmentioning

confidence: 99%

Peer-Induced Fairness in Games

Ho¹,

Su²

2009

American Economic Review

211

106

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Standard theories in economics generate predictions of market behavior by invoking two fundamental assumptions. First, agents are self-interested in that their utility function depends only on their own material payoffs. Second, market behavior is at equilibrium so that no individual agent can achieve a higher payoff by unilaterally deviating from the equilibrium. Recent advances in behavioral economics relax both assumptions by allowing agents, for example, to care about others' payoffs and to make mistakes (see Matthew Rabin, 1998, Colin F. Camerer, George Loewenstein, and Rabin, 2003, and Teck-Hua Ho, Noah Lim, and Camerer, 2006a, for comprehensive reviews). This paper focuses on the self-interested assumption and investigates how social comparison may lead to fairness concerns between peers.A simple and powerful way to demonstrate that people are not purely self-interested is to study the so-called ultimatum game. In this game, a leader and a follower divide a fixed pie. The leader moves first and offers a division of the pie to the follower. The follower can accept or reject. If the follower accepts, the pie is distributed according to the proposal. If the follower rejects, both players earn nothing. When players care only about their own material payoffs, the subgame perfect equilibrium predicts that the leader should offer a small amount (e.g., a dime) to the follower and the follower would accept (since a dime is strictly preferred to nothing). However, data from many experiments (where subjects are motivated by substantial financial incentives) cast doubt on this sharp prediction. Typically, there are almost no offers below 20 percent of the pie. A majority of offers are between 30 percent to 40 percent. Low offers are frequently rejected and the frequency of rejection increases as the offer decreases. These findings are robust to stake size (Robert Slonim and Alvin E. Roth, 1998), persist with repeated trials (Roth et. al, 1991), and prevail across diverse cultures (Joseph Henrich, 2000;Camerer et. al, 2001;Miguel Costa-Gomes and Klaus G. Zauner, 2001). * Ho and Su: Haas School of Business, University of California, Berkeley, CA 94720, Email: Ho: hoteck@haas.berkeley.edu; Su: xuanming@haas.berkeley.edu. Authors are listed in alphabetical order. Direct correspondence to any of the authors. We thank George Akerlof, Eduardo Andrade, Colin Camerer, Vince Crawford, Laura Gardner, Juanjuan Zhang, and three anonymous reviewers for helpful comments. Esther Hwang provided superb research assistance. Taizan Chan designed and developed the software system for running our experiments.

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“…In economics, social comparisons have been shown to influence both behavior (see for example Glaeser et al, 1996, on criminal activity; Duflo and Saez, 2002, on investment plans; Güth et al 2001, Charness and Kuhn, 2007, Gächter and Thöni, 2009, and Clark et al, 2010, on effort in employer-employee relationships) and subjective well-being (Clark and Oswald, 1996;Clark et al, 2008;Brown et al, 2008;Ferrer-i-Carbonell, 2005;Luttmer, 2005;Azmat and Iriberri, 2010). Social comparisons are especially important when people care about their status in their reference group.…”

Section: Introductionmentioning

confidence: 99%

Competitive Preferences and Status as an Incentive: Experimental Evidence

2010

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Abstract:In this paper, we investigate individuals' investment in status in an environment where no monetary return can possibly be derived from reaching a better relative position. We use a real-effort experiment in which we permit individuals to learn and potentially improve their status (rank). We find that people express both intrinsic motivation and a taste for status. Indeed, people increase their effort when they are simply informed about their relative performance, and people pay both to sabotage others' output and to artificially increase their own relative performance. In addition, stronger group identity favors positive rivalry and discourages sabotage among peers.

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Fairness Within Firms: The Case of One Principal and Multiple Agents

Cited by 77 publications

References 20 publications

Effort and Comparison Income: Experimental and Survey Evidence

Effort and Comparison Income: Experimental and Survey Evidence

Peer-Induced Fairness in Games

Competitive Preferences and Status as an Incentive: Experimental Evidence

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