Article

Status and Incentives

The RAND Journal of Economics (Impact Factor: 1.49). 03/2008; 39(http://neeo.univ-tlse1.fr). DOI: 10.1111/j.1756-2171.2008.00015.x
Source: RePEc

ABSTRACT Parker and Van Praag (2009) showed, based on theory, that the group status of the profession ‘entrepreneurship’ shapes people’s occupational preferences and thus their choice behavior. The current study focuses on the determinants and consequences of the group status of a profession, entrepreneurship in particular. If the group status of entrepreneurship is related to individual choice behavior, it is policy relevant to better understand this relationship and the determinants of the status of the entrepreneur. For reasons outlined in the introduction, this study focuses on (800) students in the Netherlands. We find that the status of occupations is mostly determined by the required level of education, the income level to be expected and respect. Furthermore, our results imply that entrepreneurship is associated with hard work, high incomes, but little power and education. Moreover, we find evidence that individual characteristics, such as entrepreneurship experience, vary systematically with the perceived status of occupations, thereby contributing ammunition to a fundamental discussion in the literature. Finally, we find a strong association between the perceived status of the entrepreneur and the estimated likelihood and willingness to become an entrepreneur.

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Available from: Emmanuelle Auriol, Sep 02, 2015
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    • "Different to our study, Huberman et al. (2004) through a psychological experiment have shown that individuals are willing to trade off some material gain to obtain status. Besley and Ghatak (2008) has asserted by providing a micro-theoretic explanation that to expend effort status incentive works as partial substitute of monetary incentive. Dhillon and Herzog-Stein (2009) also assumes a convexity in preference 7 on status to show that it is optimal for the firm to offer ex-ante identical agents with discriminatory wage contract when agents are concerned about the rank of their wages. "
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    ABSTRACT: Using a moral hazard framework with limited liability with discrete effort levels the paper characterizes the structure of monetary incentives in an organization with varying differences in employee status. This paper finds that irrespective of the level of reservation utility of the agents, higher status agents induce high effort in exchange of high monetary bonus and vice versa. For agents with lower outside option optimal fixed wage is invariant with status holding of the agent, but for high outside option agents, the limited liability doesn't bind such that the fixed payment is positive and exhibits complementary relation with status.
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    • "To guide the analysis, we model the educational choice made by self-interested parents with dierent social statuses. Our specication of preferences has the property that status and income are complements: as sociologists would put it, agents exhibit a taste for status congruence (see Auriol and Renault, 2002, 2008). This property implies that the marginal utility of income increases with social status. "
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    ABSTRACT: This paper examines determinants of schooling in traditional hierarchical societies with an established history of outmigration. In the village, a ruling caste controls local political and religious institutions. For children who do not belong to the ruling caste, migration is a strategy to increase social mobility, a process that is enhanced by formal schooling. Since formally educated migrants tend not to return to the home community, the ruling caste seeks to develop family loyalty by choosing religious education instead. The theory hence predicts that the social status of the family has a significant impact on the parental educational choices of future migrant children. Children from the ruling caste who are encouraged by their parents to migrate have a lower probability of being sent to formal school than children from the low caste. The theoretical predictions are tested on data from the Matam region in Senegal, a region where roughly one of every two children has ever attended school.
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    • "standing; instead, it is the principal's preference for ex post equality of individual welfares that introduces an equity component into the optimal reward schemes. Auriol and Renault (2003) analyse the impact of status concerns on incentives in a principal-agent model. They allow …rms to provide status symbols that are independent of wages, and show that higher levels of e¤ort can be elicited. "
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    ABSTRACT: This paper shows that introducing status concerns into a tournament model has substantial implications for the provision of incentives. We emphasize the role of reference groups and determine the optimal number of winners and losers in tournaments. To compensate employees for the disutility of low status, a profit-maximizing employer may be reluctant to demote employees and instead reward workers through promotions. This rationalizes the prevalence of compensation systems which reward winners without explicitly identifying losers. Differences in ambition and ability affect contestants’ efforts and may result in inefficient promotion outcomes. We analyze how to mitigate these inefficiencies when managing a diverse workforce by using mixed and segregated tournaments.
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