Institute for Empirical Research in Economics University of Zurich Working Paper Series ISSN 1424-0459 Working Paper No. 2F9 ight ever toards a oomis of ards Gruno S. Frey May 2005 1 KNIGHT FEVER TOWARDS AN ECONOMICS OF AWARDS by Bruno S. Frey! Institute for Empirical Economic Research. University of Zurich and CREMA – Center for Research in Economics, Management and the Arts, Zurich (this version 25 April 2005) Abstract Awards in the form of orders, medals, decorations and titles are ubiquitous in monarchies and republics, private organizations, not-for-profit and profit-oriented firms. Nevertheless, economists have disregarded this kind of non-material extrinsic incentive. The demand for awards relies on an individual’s desire for distinction, and the supply of awards on the provision of incentives. Relative price and income effects are shown to be identifiable and strong. A number of empirically testable propositions are formulated. As awards are (at least so far) impossible to measure adequately, empirical tests are carried out using the technique of analytic narratives. (93 words) Keywords: Incentives, motivation, awards, orders, distinction, principal-agent JEL Classification: D23, D73, J22, J33, L22, Z13 ! Bruno S. Frey is Professor of Economics;
[email protected]. Part of this paper was conceived and written while I was a Distinguished Visitor at STICERD, London School of Economics. I am grateful for the support of Susanne Neckermann when writing the paper, and for enlightening discussions with, and helpful comments to earlier version of the paper to Michael Baurmann, Christine Benesch, Matthias Benz, Tim Besley, Geoffrey Brennan, Reiner Eichenberger, Christoph Engel, Nicolai Foss, Dieter Frey, Hartmut Kliemt, Barbara Krug, Lord Richard Layard, Siegwart Lindenberg, Simon Luechinger, Stephan Meier, Margit Osterloh, Friedrich Schneider, Alois Stutzer and Anna Winestein.