Awards — Cont’d | Organizations and Markets

Awards — Cont’d

12 December 2006 at 8:45 am Nicolai Foss Leave a comment

| Nicolai Foss |

OK — this will be my last entry on the economics of awards. Promise. Here goes:

We usually take awards to be non-material in nature. In his work on awards, Frey explicitly makes this point by assuming that awards are non-material kinds of compensation (here and here).

Frey does note, however, that sometimes awards are accompanied by money. Indeed, we are all familiar with those pictures in the newspaper of a happy prize recipient presenting a 2,5 x 1 meter cheque with the amount of money very clearly visible.

Thus, note that non-material compensation in the form of awards may have material implications. A distinction, such as a Knighthood bestowed upon a businessman may conceivably do good things to his business, because it may allow him to access networks he could not access earlier and influence decision-makers in favourable ways. A Nobel Prize winner can afterwards enter the highly lucrative lecturing circuit. Many books are advertised on the basis of their winning prestigious awards which of course also impacts the income of the prize winner/author. Etc. (This kind of reasoning is akin to Lerner and Tirole’s discussion of motivation in open source production).

This suggests that it is conceivable that at least some awards may be pursued not just because of the social distinction they imply, but also because of the monetary compensation that accompanies them, whether directly or indirectly. It may be hypothesized that this is more likely to happen in the case of awards that are given to relatively speaking more needy persons, for example, authors and musician or even journalists (cf. the Pulitzer Prize) than for awards that are given to higher income persons (industrialist, high-ranking bureaucrats, etc.). However, it seems less likely to assume that, say, high-ranking bureaucrats are interested in awards because of their possible monetary implications; there simply may not be any. For this class of awards, Frey’s reasoning would seem apply directly.

The general issue is that it may make sense to make a distinction between those awards that have material implications, and where their incentive effects and the reason that they are pursued are partly related to this, and those awards that have little or no apparent material implications. A related discussion is whether material and non-material aspects of a reward are complements, substitutes or just unrelated. The above discussion indicates that material and non-material aspects may be complements. However, it is at least conceivable that the value of certain awards would be devalued in the eyes of the recipient if they were accompanied by material, for example, monetary rewards. Thus, motivation crowding out is a possibility.