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Fairness and desert in tournaments

Fairness and desert in tournaments
Fairness and desert in tournaments
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.



desert, equity, tournament, loss aversion, reference-dependent preferences, reference point, psychological game theory, status, relative performance evaluation
1471-0498
903
University of Southampton
Gill, David
2319117f-b14e-48c6-8a33-34f5c9d4e2ea
Stone, Rebecca
725b2db5-cc73-462d-bc1f-3c254d7a065f
Gill, David
2319117f-b14e-48c6-8a33-34f5c9d4e2ea
Stone, Rebecca
725b2db5-cc73-462d-bc1f-3c254d7a065f

Gill, David and Stone, Rebecca (2009) Fairness and desert in tournaments (Discussion Papers in Economics and Econometrics, 903) Southampton, UK. University of Southampton 36pp.

Record type: Monograph (Discussion Paper)

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.



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Published date: 2009
Keywords: desert, equity, tournament, loss aversion, reference-dependent preferences, reference point, psychological game theory, status, relative performance evaluation

Identifiers

Local EPrints ID: 79210
URI: http://eprints.soton.ac.uk/id/eprint/79210
ISSN: 1471-0498
PURE UUID: 8589321e-0dee-44a6-8f6e-51d6e7cf78f4

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Date deposited: 17 Mar 2010
Last modified: 14 Mar 2024 00:28

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Contributors

Author: David Gill
Author: Rebecca Stone

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