First-Place Loving and Last-Place Loathing: How Rank in the Distribution of Performance Affects Effort Provision

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Rank-order relative-performance evaluation, in which pay, promotion and symbolic awards depend on the rank of workers in the distribution of performance, is ubiquitous. Whenever firms use rank-order relative-performance evaluation, workers receive feedback about their rank. Using a real-effort experiment, we aim to discover whether workers 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 increase their effort the most after being ranked first or last. We discuss implications of our findings for the optimal design of firms' performance feedback policies, workplace organizational structures and incentives schemes.JEL Classification: C23, C91, J22, M12

Rank Incentives and Social Learning: Evidence From a Randomized Controlled Trial

“…The textbook covers all the topics traditionally taught in a standard Principles of Microeconomics course, from the principle of comparative advantage through to externalities and public goods. Exercises, on the other hand, are grouped into several sets, each focusing on a different economic topic and each corresponding to a 14 Our results are tentatively in line with the demoralization effect reported in Barankay (2012), but are in contrast with Khunen and Tymula (2012) and Azmat et al (2019), who find those ranking lower (higher) than expected increasing (reducing) effort, and with Gill et al (2018), who report U-shaped rank response functions. different textbook chapter.…”

“…Second, we are the first to provide evidence that rank incentives can be effective in higher education. 4 Indeed, we find that feedback has a positive impact on students' performances not just in the online assignment on which 1 There are also a considerable number of laboratory experiments on the effect of feedback on relative position -see, for instance, Hannan et al (2008), Eriksson et al (2009), Khunen and Anieszka (2012), Charness et al (2013), Gerhards and Siemery (2014), Azmat and Iriberri (2016), Gill et al (2018), among others. 2 See Barankay (2012), Tran and Zeckhauser (2012).…”

Individual speculative behavior and overpricing in experimental asset markets

“…As Gill et al (2017) show, it is important whether someone is ranked highest or lowest in a group. In principle, our SET-score ranking procedure would allow us to compare the behavior of similar subjects in different setups.…”

Achievement Gains from Attendance at Selective High Schools

“…One can imagine certain individuals performing better with increased expectations from ranking highly and others performing worse from increased expectations. In a workplace setting experiment, Gill et al (2015) found that high and low ranked participants exerted greater effort 128 . It seems probable that the optimal level of peer achievement, which the local ranks measure indirectly, should be neither too high or too low for each student.…”

“…128 With reference to relative-performance in the workplace Gill et al (2015) conduct an experiment to obtain an estimate of the rank response function, how effort provision responds to rank-order feedback. They find a U-shaped function, which they characterize as first-place loving and last-place loathing.…”