Unilateral Envy, Pay Inversion, and the Cost of Age Diversity

Eiji Ohashi

Bulletin of Economic Research, 2025, vol. 77, issue 4, 437-443

Abstract: Research shows that older people are more likely to be envious of their younger peers than the other way around. I analyze how such unilateral envy affects optimal incentive contracts for young and old agents. I show that the optimal contracts can be characterized by pay inversion: The principal offers a higher expected wage to the young agent than to the old agent. Further, I show that the principal is generally worse off with unilaterally envious agents than with bilaterally envious ones. I discuss the implications of these findings.

Date: 2025
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