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Endogenous Social Comparisons and the Internal Organization of Firms

✍ Scribed by Björn Bartling

Publisher
John Wiley and Sons
Year
2011
Tongue
English
Weight
167 KB
Volume
33
Category
Article
ISSN
0143-6570

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✦ Synopsis

Should workers of a firm be organizationally integrated to realize benefits from benchmarking? Or should they be separated to preclude horizontal social comparisons? This paper highlights a trade‐off that arises if social comparisons in firms are endogenous. We analyze a principal multi‐agent model in which the principal trades off the reduction of agents' risk exposures by use of relative performance evaluation and the thereby induced social comparisons for which agents must be compensated. Contrary to standard theoretical predictions, relative performance evaluation is optimal only if the performance measures are sufficiently correlated relative to the agents' regard for others. Copyright © 2011 John Wiley & Sons, Ltd.

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