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Rank-order relative-performance evaluation, in which pay, promotion, symbolic awards, and educational achievement depend on the rank of individuals in the distribution of performance, is ubiquitous. Whenever organizations use rank-order relative-performance evaluation, people receive feedback about their rank. Using a real-effort experiment, we aim to discover whether people respond to the specific rank that they achieve. In particular, we leverage random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback. We find that the rank response function is U-shaped. Subjects exhibit “first-place loving” and “last-place loathing”: that is, subjects work hardest after being ranked first or last. We discuss implications of our findings for the optimal design of performance feedback policies, workplace organizational structures, and incentives schemes. Data and the supplementary web appendix are available at https://doi.org/10.1287/mnsc.2017.2907 . This paper was accepted by Uri Gneezy, behavioral economics.

PurposeThe author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market.Design/methodology/approachThis specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999–2018), allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular.FindingsAs nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which help the model match data better, as compared to a setup without rigidities.Practical implicationsThe findings suggest that technology shocks seem to be the dominant source of economic fluctuations, but nominal wage rigidities as well as the monopolistic competition in the product market, might be important factors of relevance to the labor market dynamics in Bulgaria, and such imperfections should be incorporated in any model that studies cyclical movements in employment and wages.Originality/valueThe computational experiments performed in this paper suggest that wage rigidities are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria, which is a novel result.

This paper investigates the relationship among tax competition, the equilibrium efficiency of providing public goods, and intergovernmental transfers, under labor market imperfections. Labor market imperfections cause unemployment-exporting externalities, in addition to fiscal externalities. One of the key points is the unemployment-exporting externality can be either a positive or negative externality. A transfer must internalize these two different externalities to provide public goods efficiently. We consider three specific transfers: tax base equalization, tax revenue equalization, and GDP-based equalization. This paper shows that tax base equalization is more effective than revenue equalization in improving the efficiency of public goods supply if two positive externalities are present. In contrast, tax revenue equalization may be better than tax base equalization if both positive and negative externalities are present. This implies that these two options fail to eliminate the overall external effect in some cases. We demonstrate that in a realistic situation, GDP-based equalization can internalize two different externalities perfectly.

In a right-to-manage framework, this paper analyzes the optimal choice of the pay scheme (profit sharing vs. fixed wage) in a unionized duopoly with potential market entry and decentralized bargaining. The paper shows that, depending on the institutional features, both pay systems can arise as equilibria in Nash strategies. Under duopoly with committed bargaining, the fixed wage is the Nash equilibrium; with flexible bargaining, an agreement between the incumbent firm and its union about profit sharing arises as Nash equilibrium, if the union is not too strong. A monopoly with threat of entry reinforces the selection of profit sharing as a deterrent mechanism.

The present work analyzes the effects of goods and capital market integration on welfare. In an imperfectly competitive industry with unionized labor, openness to competition via exports, the possibility of holding minority stakes into a rival company and undertaking Greenfield Foreign Direct Investment (FDI) exemplify product and capital market liberalization, respectively. Challenging the \"lieu commune\" that liberalization a priori improves the social welfare of an economy, making use of a game-theoretic approach, it is shown that a domestic government should design the appropriate interventions in product and capital markets depending on the precise pattern of economic integration.

We select a Korean case with ample subcontracting practices and a rigid wage system. Workplaces with subcontract transactions would have reason to impute the additional wage incremental costs associated with the seniority-based wage system (Hobong in Korea) to subcontractors. Our empirical results identify the cost-transferring mechanism under which the cost of wage rigidity for contractors is transferred to subcontracting firms and aggravates the wage inequality among workers in contracting and subcontracting firms. We analyze the industrial difference in the intensity of this transferring mechanism and probe policy directions considering the improvement of both the subcontracting structure and pay system simultaneously. For the sustainability of firms, they need to reform a seniority-based wage system, an incentive-based wage system or a job-based wage system and the exploited subcontracting structure for creating share value.

The need for the sustainable spatial development enables an analysis of the causes of the regional differentiation of consumer price growth rates for further development of relevant policies at the federal and regional levels. Therefore, the paper aims to examine how various supply and demand shocks in the tradable and non-tradable sectors as well as labour market imperfections influence price growth rates in the Russian regions. The considered regions are Sverdlovsk oblast and other regions of the Russian Federation (RF). Developing a regional model of general equilibrium contributes to the analyse. The model’s parameters were assessed using the Bayesian method based on the statistical data on the economies of Sverdlovsk oblast, other regions and the Russian Federation in general. Two types of models were considered, with flexible and rigid wages, indicating perfect and imperfect labour markets. The influence of supply and demand shocks in the tradable and non-tradable sectors on price growth rates in the considered regions was analysed using the impulse response functions and variance decompositions of endogenous variables. The study concludes that price growth rates in the regions differ mostly due to technological shocks in the non-tradable sector. The contribution of productivity shocks in the tradable sector to the inflation differential is limited, especial ly in the context of perfect labour mobility. Labour market imperfections cause an increase in the differentiation of consumer price growth rates in the regions. Moreover, this process is more pronounced in Sverdlovsk oblast and is typical for both tradable and non-tradable sectors and services. The study demonstrates the absence of the Balassa — Samuelson effect at the regional level. The findings can be used for elaboration of an effective regional policy of sustainable spatial development.

Drawing on the proposer-responder game examined by Andreoni, Harbaugh, and Vesterlund (2003), I experimentally test four variations of a principal-agent relationship with fixed pay and real effort. Depending on the treatment, the principal can voluntarily, but at her own expense, (1) only reward her agent, (2) only punish her agent, (3) either reward or punish her agent, or (4) neither reward nor punish her agent. Compared to Andreoni et al., I find substantially higher investments in reward, about the same expenses for punishment, and no significant difference among the four treatments regarding output levels. I attribute these findings to the real effort aspect of the experimental design.

The need for the sustainable spatial development enables an analysis of the causes of the regional differentiation of consumer price growth rates for further development of relevant policies at the federal and regional levels. Therefore, the paper aims to examine how various supply and demand shocks in the tradable and non-tradable sectors as well as labour market imperfections influence price growth rates in the Russian regions. The considered regions are Sverdlovsk oblast and other regions of the Russian Federation (RF). Developing a regional model of general equilibrium contributes to the analyse. The model’s parameters were assessed using the Bayesian method based on the statistical data on the economies of Sverdlovsk oblast, other regions and the Russian Federation in general. Two types of models were considered, with flexible and rigid wages, indicating perfect and imperfect labour markets. The influence of supply and demand shocks in the tradable and non-tradable sectors on price growth rates in the considered regions was analysed using the impulse response functions and variance decompositions of endogenous variables. The study concludes that price growth rates in the regions differ mostly due to technological shocks in the non-tradable sector. The contribution of productivity shocks in the tradable sector to the inflation differential is limited, especially in the context of perfect labour mobility. Labour market imperfections cause an increase in the differentiation of consumer price growth rates in the regions. Moreover, this process is more pronounced in Sverdlovsk oblast and is typical for both tradable and non-tradable sectors and services. The study demonstrates the absence of the Balassa — Samuelson effect at the regional level. The findings can be used for elaboration of an effective regional policy of sustainable spatial development.

We analyze a legal reform concerning employees' inventions in Germany. Using a simple principal-agent model, we derive a unique efficient payment scheme: a bonus which is contingent on the project value. We demonstrate that the old German law creates inefficient incentives even if litigation cost is zero. However, the new law (concerning university employees) and the pending reform proposal (concerning other employees) also fail to implement first-best incentives. With suboptimal incentives to spend effort on inventions, the government's goal, an increase in the number of patents, is likely to be missed. [PUBLICATION ABSTRACT]