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Social comparisons and the firm¡¦s profits: An advantage of rewarding equal workers unequally |
Oded Stark Agnieszka Dorn Yong Wang |
Working paper |
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Yong Wang |
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This paper analyzes the impact
of social comparisons on a firm¡¦s profits and an optimal incentive
structure. When workers are equally productive, the differences in how they
are treated can arise from a firm¡¦s profit-maximizing decisions rather than
from differences in
workers¡¦ productivity or employers¡¦ preferences. When a worker
derives (dis)utility not only from the amount of
effort he puts in but also from comparing his earnings unfavorably with those of
his coworkers, his response to
his sense of ¡§relative deprivation¡¨ is to increase his level of effort. In the
presence of such social comparisons, the firm can increase its profits by
offering different contracts to equally productive workers. |