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Envy and Compassion in Tournaments
Author(s) -
Grund Christian,
Sliwka Dirk
Publication year - 2005
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.2005.00039.x
Subject(s) - tournament , inequity aversion , economics , microeconomics , compassion , public economics , inequality , political science , law , mathematics , mathematical analysis , combinatorics
Many experiments and field studies 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 efforts than purely self‐interested agents for a given prize structure. Contrary to standard tournament theory, first‐best efforts cannot be implemented when prizes are endogenous. Furthermore, the choice between vertical and lateral promotions is examined and it is shown that inequity costs have to be traded off against losses in human capital .