Fairness and Desert in Tournaments

David Gill and Rebecca Stone

No 279, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We develop a model to describe the behavior of agents who care about receiving their just deserts in competitive situations. In particular we analyze the strategic behaviour of two identical desert-motivated agents in a rank-order tournament. Each agent is assumed to be loss averse about an endogenous and meritocratically determined reference point that represents her perceived entitlement. Sufficiently strong desert concerns render the usual symmetric equilibrium unstable or non-existent and allow asymmetric desert equilibria to arise in which one agent works hard while the other slacks off. As a result, agents may prefer competition for status to a random allocation, even when the supply of status is fixed. When employees are desert-motivated we find that an employer may prefer a tournament to relative performance pay linear in the difference in the agents` outputs if output noise is sufficiently fat-tailed or if the employer can use the tournament to induce an asymmetric equilibrium.

Keywords: Desert; Tournament; Loss Aversion; Status Competition; Relative (search for similar items in EconPapers)
JEL-codes: D63 J33 (search for similar items in EconPapers)
Date: 2006-09-01
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Fairness and desert in tournaments (2010)
Working Paper: Fairness and Desert in Tournaments (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:279

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