Altruism and Tournament Incentives in the Workplace

This paper studies the effects of tournament incentives with subjective performance measures and the existence of altruism. One of the conclusions of the model is related to a situation where the principal has no altruistic preferences. In such a situation both agents will always exert high effort and the principal will never shirk. However, if the principal has asymmetric altruistic feelings towards his agents, then the results of the model depend on the visibility of the altruism which can be either visible or invisible. Asymmetric altruistic feelings may trigger the principal to grant the bonus payment to the agent he likes most instead of the agent with the highest performance, as it contributes more to his utility. If altruism is invisible then the equilibria depend on the beliefs of the agents based on their priors. A tournament cannot be organized if the agents, based on their priors, believe that the principal will shirk. If those priors indicate the agents that the principal will not shirk, it is still possible that the principal does not keep his promise. A principal may decide to shirk in specific situations and then he will be punished by the agents in subsequent periods. If altruism is visible and the parameters are such that the principal will shirk, then both agents will ex-ante not respond to the bonus payment. Consequently, the principal will not organize a tournament. However, the principal will decide to keep his promise if the punishment of shirking is strong enough and then both agents will respond to the bonus payment by exerting high effort. So, although the agents know that the principal has asymmetric altruistic feelings, it is under specific circumstances still possible to have a tournament where the principal does not shirk and the agents exert high effort. A principal who is considering shirking is more likely to do it if he gives a low weight to the future.