As Charness, Masclet and Villeval explain with an experiment in a recent article, competition for status has a dark side. Unethical behavior within organizations is not rare. They investigate experimentally the role of status-seeking behavior in sabotage and cheating activities aiming at improving one’s performance ranking in a flat wage environment. They find that average effort is higher when individuals are informed about their relative performance. However, ranking feedback also favors disreputable behavior. Some individuals do not hesitate to incur a cost to improve their rank by sabotaging others’ work or by increasing artificially their own performance. Introducing sabotage opportunities has a strong detrimental effect on performance. Therefore, ranking incentives
should be used with care. The implications of this are broader. Giving salience to status and competitiveness creates a society with individuals that focus on gains to the detriment of others, sometimes at any cost. In small organizations, this means sabotaging others or cheating. More generally, a society that privileges the winners, both materially and in terms of prestige, creates incentives for corruption as well as for effort. In the context of organizations, the solution is to reinforce intrinsic incentives and lower the power of incentives when there are several dimensions of effort or several tasks that are substitutes. In the context of society in general, perhaps we put too much emphasis on formal or legal reforms to fight corruption, and too little emphasis on promoting broad ethical values, the equivalent to intrinsic incentives in organizations. Formal institutions are not enough because they will always leave some contingencies to be addressed. Broader values and informal institutions instead, can be more generically applied, although of course introducing them is easier said than done.
Paul Krugman: Zombies of Voodoo Economics
12 hours ago