Endogenous Social Comparisons and the Internal Organization of Firms
Article first published online: 11 OCT 2011
Copyright © 2011 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 33, Issue 1, pages 11–17, January 2012
How to Cite
Bartling, B. (2012), Endogenous Social Comparisons and the Internal Organization of Firms. Manage. Decis. Econ., 33: 11–17. doi: 10.1002/mde.1555
- Issue published online: 6 DEC 2011
- Article first published online: 11 OCT 2011
- endogenous social comparisons;
- internal organization;
- relative performance evaluation;
- social distance;
- moral hazard
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.