COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1835

"Prizes versus Wages with Envy and Pride"

Pradeep Dubey, John Geanakoplos, and Ori Haimanko

November 2011

We show that if agents are risk neutral, prizes outperform wages if and only if 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