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Confidence Management: On Interpersonal Comparisons in Teams


  • We thank a co-editor and two referees for their comments. We also gratefully acknowledge feedback from the audience at presentations at ESEM 2008 meeting in Milan, the Erasmus School of Economics, European University Institute, University of Essex, the University of Groningen, and HEC Montreal. Special thanks are due to Leon Bettendorf, Pascal Courty, Robert Dur, Mike Gibbs, Maarten Goos, Marco Haan, Giuseppe Moscarini, Karl Schlag, and, in particular, Vladimir Karamychev. Part of this paper was written while Bauke Visser was a Fernand Braudel Fellow at the EUI.


Organizations differ in the degree to which they differentiate employees by ability. We analyze how the effect of differentiation on employee morale may explain this variation. We characterize sufficient conditions for the manager to refrain from differentiation. She refrains from differentiation when employees are of similar ability, especially if absolute levels are high. Avoiding differentiation boosts the self-image of employees. To limit the negative effects of differentiation, the manager's strategy often relies on the coarsest message set possible. The likelihood that the manager differentiates depends on the presence of synergies between employees and on the convexity of the cost of effort function. Finally, we show that in the absence of commitment no differentiation is chosen too often.