More on Awards

10 December 2006 at 10:21 am Nicolai Foss Leave a comment

| Nicolai Foss |

In his work on awards (see below), Bruno Frey tells a sophistiscated story of how awards function by providing “soft,” extrinsic motivation and help to solve agency problems that more conventional instruments cannot solve. However, casting awards in a purely motivational framework arguably leaves out some possible economic functions of awards.

One such function is that rewards may coordinate actions because they have a strong signalling effect. As an example, book awards may serve as a sort of focal points that authors, publishers, and the reading public (and perhaps the state to the extent that books are subsidized) can coordinate their expectations and actions on. These kind of focal points reduce search and information costs. (Akin to the reasoning in Tyler Cowen’s great book What Price Fame.)

Another function is that awards may constrain rent-seeking. At least in universities, casual empiricism indicates that awards are good predictors of academic careers. Of course, ability is arguably the main reason why this is so. However, there may also be a rent-seeking aspect: If players understand the award-career link, the conferment of an academic distinction on one of their peers may reduce their rent-seeking efforts because the conferring body (which is often closely aligned with university management) signals that they have decided on a preferred candidate. Obviously, however, this may only result in shifting rent-seeking efforts toward the award itself, so whether rent-seeking as a whole is reduced depends on the relative sizes of these two effects.