COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1537

Prizes versus Wages with Envy and Pride

Pradeep Dubey, John Geanakoplos and Ori Haimanko

October 2005

We show that if agents are risk neutral, prizes outperform wages when there is sufficient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).

Keywords: Envy, Pride, Wages, Prizes, Bonus

JEL Classification: C72, D01, D23, L14