Bruno Frey on Awards

7 December 2006 at 7:41 am Nicolai Foss Leave a comment

| Nicolai Foss |

Bruno Frey is one of those economists who make economics fun. Like economists such as Yoram Barzel, Gary Becker, and, of course, Stephen Levitt, he has a great intuition for applying economics to new areas where nobody has hitherto thought of taking it.

Like George Akerlof, but unlike Barzel, Becker and Levitt, Frey is, however, not that satisfied with the behavioral core of mainstream economics, mainly because it tends to provide an impoverished treatment of human motivation. Thus, he is no Becker-style economic imperialist (or, at least, the charicature thereof), but on the contrary is quite attentive to relevant insights in, particularly, psychology. Whereas numerous economists have taken an interest in the cognitive dimensions of psychology research — as witness the recent explosion of interest in nanoeconomics — Frey’s interest in psychology has been more concerned with motivational issues. Thus, quite a lot of Frey’s enormous (and enormously impressive) production has been devoted to pushing the boundaries of economics by taking seriously psychology ideas on social comparison processes, intrinsic motivation, etc. His work with Margit Osterloh on the motivational foundations of knowledge sharing in organizations will be familiar to many readers of this blog.

Frey has recently started a new research program, namely research into the function of awards (see here and here).

His basic framing of the issues is essentially a principal-agent one, but he refines the rather crude treatment of motivation in this theory by means of the fundamental idea that social comparison plays a key role in human motivation (ideas recently explored in the theory of the firm by Jackson Nickerson and Todd Zenger). Frey does so to understand the award phenomenon (i.e., orders, medals, decorations, and prizes) that in spite of being all around us is curiously under-researched. He identifies a set of conditions under which awards rather than rewards will be used, derives a set of plausible propositions, and provides empirical illustrations. For example, he predicts that awards will be more used when the principal has little financial resources, it is difficult to specify and monitor work,and when the principal can control the supply of awards, they don’t crowd out intrinsic motivation, the risk of giving awards to unworthy persons is smaller (knighthoods to the likes of Mick Jagger?), and when the principal has a long time horizon.

A highly recommended set of papers!