Fairness and Desert in Tournaments

David Gill and Rebecca Stone

MPRA Paper from University Library of Munich, Germany

Abstract: We model the behavior of agents who care about receiving what they feel they deserve in a two-player rank-order tournament. Perceived entitlements are sensitive to how hard an agent has worked relative to her rival, and agents are loss averse around their meritocratically determined endogenous reference points. In a fair tournament sufficiently large desert concerns drive identical agents to push their effort levels apart in order to end up closer to their reference points on average. In an unfair tournament, where one agent is advantaged, the equilibrium is symmetric in the absence of desert, but asymmetric in the presence of desert. We find that desert concerns can undermine the standard conclusion that competition for a fixed supply of status is socially wasteful and explain why, when the distribution of output noise is fat-tailed, an employer might use a rank-order incentive scheme.

Keywords: Desert; Equity; Tournament; Loss Aversion; Reference-Dependent Preferences; Reference Point; Psychological Game Theory; Status; Relative Performance Evaluation (search for similar items in EconPapers)
JEL-codes: D63 J33 (search for similar items in EconPapers)
Date: 2010-01-12
New Economics Papers: this item is included in nep-cbe and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (88)

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Related works:
Journal Article: Fairness and desert in tournaments (2010)
Working Paper: Fairness and Desert in Tournaments (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21322

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