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...

Previous research in economics shows that compensation based on the pay-for-performance principle is effective in inducing higher levels of effort and productivity. On the other hand, research in psychology argues that performance-based financial incentives inhibit creativity and innovation. How...

We investigate the choice to conduct interim performance evaluations in a dynamic tournament. When a worker's ability does not influence the marginal benefit of effort, the choice depends on the shape of the cost of effort function. When effort and ability are complementary, feedback has several...

When one firm's strategy affects other firms' value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower costs induce higher output. Hence, greater...

Consumer search is not only costly but also tiring. We characterize the intertemporal effects that search fatigue has on monopoly and oligopoly prices, the product lines offered by firms, and the provision of consumer assistance (i.e., advice). These effects vary based on whether search is...

Using a large-scale hybrid laboratory and online trust experiment with and without pre-play communication, we investigate how the passage of time affects trust, trustworthiness, and cooperation. Communication (predominantly through promises) raises cooperation, trust, and trustworthiness by...

This paper investigates how the passage of time affects trust, trustworthiness, and cooperation. We use a hybrid lab and online experiment to provide the first evidence for the persistent power of communication. Even when 3 weeks pass between messages and actual choices, communication raises...

A firm's incentives to innovate deteriorate when other firms benefit from its R&D activities without incurring a cost. We show under which conditions common ownership of firms can mitigate this impediment to corporate innovation, and test the model's empirical predictions. Common ownership...

It is often suggested that incentive schemes under moral hazard can be gamed by an agent with superior knowledge of the environment and that deliberate lack of transparency about the incentive scheme can reduce gaming. We formally investigate these arguments in a two-task moral hazard model in...

We analyze the interaction between the incentives for free-riding and information revelation among partners in a dynamic setting. Partners contribute to the value of a common project, but have private information about the success of their own contribution efforts. The desire to maintain a...