Why Do Economists Disreagard Awards As A Source of Motivation

Abstract (via Frey Neckermann)

Awards are prevalent in all societies and at all times. So far, however, they have escaped the attention of economists. This paper presents a first analysis of awards, distinguishing them from purely monetary forms of rewards. Additionally, popular notions about the use and prevalence of awards are addressed with descriptive statistics from the International Who’s Who.

Introduction (Via Frey Neckermann)

Basically, all of the social sciences agree that the quest for social recognition is an important driver of behavior. Awards can be considered as societal symbols of recognition. They are specifically designed to fulfill the human desire to be publicly recognized and honored by others in front of or by one’s reference group. Awards in the form of orders, decorations, medals, prizes, and titles can be found in virtually all societies and at all times.1 Awards are used in the corporate sector (e.g., ‘Employee of the Month’), but also in the cultural sphere (e.g., the ‘Oscars’), in sports (e.g., ‘Sports Personality of the Year’), in domestic and international affairs (e.g., state orders and honors such as the ‘Presidential Medal of Freedom’), and other sectors of economic and social life. The Economist (2004) recognizes this by noting that “a quick glance around the globe suggests that fancy decorations are virtually universal”.

Awards are extrinsic incentives and serve as direct motivators when people exert effort explicitly to win the award. Awards serve as indirect incentives when individuals cannot or do not consciously work towards them, for example, state orders for acts of exceptional civil courage. Then, awards work because they create role models, highlight the values of a society, and also bring prestige to individuals who have acted similarly without being chosen as award recipients.

It is important to recognize that there are major differences between awards and purely monetary compensation:
1. The material costs of awards, consisting of a certificate for the wall or a small trophy, are typically low for the donors, but the value to the recipients may be very high.
2. In contrast to monetary compensation, accepting an award establishes a special relationship in which the recipient is expected to behave loyally towards the donor.
3. Due to their vague nature and ex post performance evaluation, awards are more adequate incentive instruments than monetary payments when the recipient’s performance can only be vaguely determined ex ante or measured ex post.
4. Awards are not taxed, while monetary income is.

Awards play a large role in any society because they cater to the substantial human desire to be recognized by others.3 So far, economists have neglected them as incentive instruments distinct from monetary compensation. As a first step, four stylized facts on awards are presented. Awards play a large role in business; they certainly are not solely a feature of monarchies, nor are they only a military affair. They play a large role in academia. One task for future research will be to systematically analyze and identify the determinants of the prevalence of awards across different countries and sectors. Another major task will be to more closely analyze the incentive properties of awards and to compare them to monetary payments.

Click Here To Read: Awards: A Disregarded Source of Motivation

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15. February 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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