Killer Incentives: Awards, Status Competition, and Pilot Performance during World War II Philipp Ager Leonardo Bursztyn Hans-Joachim Voth* University of University of University of Southern Denmark Chicago & NBER Zurich Abstract. We examine the role of awards and of status competition in a high- stakes setting – aerial combat during during World War II. We collect and compile new, detailed data on monthly victory scores of over 5,000 German pilots for the period 1939-45. Our results suggest that awards may have been an important incentive. Crucially, we find evidence of status competition: When the daily bulletin of the German armed forces mentioned the accomplishments of a particular fighter pilots, his former peers perform markedly better. Outperformance is differential across skill groups. The best pilots try harder, score more, and die no more frequently when a former squadron peer is mentioned; average pilots try win only very few additional victories, but die at a markedly higher rate. Our results suggest that the incentive effects of non- financial rewards can lead to ambiguous results in settings where both risk and output affect aggregate performance. * Corresponding author ([email protected]). We are grateful to Jacob Miller and Lukas Leucht for outstanding research assistance. We thank David Card, Ernesto Dal Bó, David Dorn, Barry Eichengreen, Armin Falk, Ernst Fehr, Paul Gertler, Patrick Kline, Jonathan Leonard, Martha Olney, Christy Romer, Richard Sutch, Noam Yuchtman and Fabrizio Zilibotti for helpful comments, and seminar audiences at the Academy of Behavioral Economics, Haas Business School (UC Berkeley), the Economic History Seminar (UC Berkeley), and the Labor Lunch (UC Berkeley) for constructive criticisms. 2 I. INTRODUCTION Humans crave recognition. In the Theory of Moral Sentiments, Adam Smith defined “bettering our condition” as “to be observed, to be attended to, to be taken notice of with sympathy… and approbation.” From baseball’s Hall of Fame to the Congressional Medal of Honor, from the fellowships of scholarly societies to the employee-of-the-month award, symbolic rewards exploit the human need for approbation as a motivating force. By creating an artificial scarcity, awards are meant to spur effort and increase productivity (Besley and Ghatak 2008, Moldovanu et al. 2007). Both career concerns and a desire for reciprocity may be behind the incentive effects of symbolic awards (Fehr and Schmidt 1999; Dewatripont et al. 1999). On the whole, the empirical evidence suggests that non-pecuniary rewards work. Markham, Scott, and McKee (2002) demonstrate improved attendance after a public recognition program was introduced at a US firm. Chan et al. (2014) find that academics perform better after receiving prizes or prestigious fellowships. Kosfeld and Neckermann (2011) examine students working on a database project and show that they increase their performance if they are part of the group that can receive a congratulatory card for best performance.1 Ashraf et al. (2016) show that condom sales in Zambia can be promoted effectively by non-financial rewards.2 At the same time, “[a] medal glitters, but it also casts a shadow” (Winston Churchill). Competing for awards is similar to other forms of status competition, from conspicuous consumption to prominent donations (Veblen 1899; Glazer and Konrad 1996). Just like awards, these are a way to signal status and success. Competition for positional goods is zero-sum in nature, and may lead to lower satisfaction or excessive effort (Layard 2005, Frank 1999). The overall effects of competing for symbolic awards may also be ambiguous: They may crowd in effort, giving rise to social multiplier effects, or they may crowd them out. Effects could depend on relative rank or the level of innate skill. While some theoretical work takes the zero- sum nature of symbolic rewards into account (Besley and Ghatak 2008; Moldovanu et al. 2007; Frey 2007; ), there is little empirical work on the social dimension of awards and their potential effect on others in the organization.3 In this paper, we examine the performance of German fighter pilots during World War II. These include the highest-scoring aces of all time. Fighter pilots constitute an ideal setting for analyzing the effects of awards – the stakes are high, awards were almost entirely symbolic, and principal-agent problems are strong. This is a 1 Neckermann et al. (2014) demonstrate a positive effect of awards for voluntary work behaviours on core productivity in a call center. 2 In contrast is Malmendier and Tate (2009), who show that superstar CEOs significantly underperform after receiving major awards. 3 Notable exceptions include Ashraf et al. (2014), who find that explicit rankings undermine effort, while awards increase them. 3 favourable setting compared to existing research symbolic awards, which are typically laboratory based or occur in a setting with easily observable effort and low stakes. In single-engine fighters, pilots operate alone; once battle is joined, there is no effective control of individual planes by superior officers. Each man had to decide when to pursue victory or break off contact. A pilot’s number of sorties in a day was as much determined by combat conditions as by ‘fighting spirit’. In such a setting, individual motivation was key: Germany’s most decorated pilot during World War II was Hans-Ulrich Rudel. He completed 2,500 missions, destroying over 500 Russian tanks and three capital ships in the process. Rudel insisted on flying continuously until the end of the war despite having a leg amputated, and despite being ordered by Hitler himself to stop flying and transfer to a training school (Rudel 1949). Awards were also purely symbolic, consisting of medals worth only pennies. Medals did not come with financial rewards nor did they automatically lead to promotion with higher rates of pay.4 The German armed forces operated an elaborate system of awards and medals. The main ones – the Knight’s Crosses – were awarded cumulatively, with each lower award being a requisite for the next step on the ladder. Personal valor in the face of the enemy was a key consideration; privates, NCOs and officers had similiar chances to be recognized, and there were almost no awards for ‘desk warriors’ (Van Creveld 1980). Recipients of the Knight’s Cross were widely considered heroes, starred on the front pages of magazines, and were frequently asked for autographs, or to tour the ‘home front’ to boost morale. Military hierarchy was partly inverted for recipients – officers had to salute a Knight’s Cross holders first, even if a mere private was wearing the medal. While the symbolic value was high, so were the stakes involved in aerial combat – by spring 1944, fully a quarter of Luftwaffe pilots became casualties every month.5 The vast majority of German fighter pilots serving in World War II was shot down and died. We first examine the effects of awards and of public recognition on the performance of recipients. Pilots scored more victories in the run-up to receiving an award, and then went back to their earlier performance level. These effects were carefully taken into account by the air force leadership. Germany began the war with an established system of awards. After the massive successes against France and initially, against the Soviet Union, many aces already held the top award – the Knight’s Cross. To keep pilots motivated, and after much pressure from the Luftwaffe especially, the German armed forces introduced new medals: the Oak Leaves to the Knight’s Cross, 4 Pilots typically did not want to be promoted, for fear of being given a desk job. The air force was careful to not ‘reward’ its best pilots by promotion and an effective transfer to administrative duty. 5 In the first six months of 1944, the Luftwaffe lost 250% of its fighter strength – i.e. without new planes arriving from the factories, it would have found itself without planes very quickly. Loss rates for planes were higher than for pilots since many pilots crash-landed or parachuted to safety, even when their plane had been completely destroyed. 4 the Swords, and the Diamonds.6 This is in line with the predictions from models of fashion cycles, where the status value of high-end products continuously are devalued as they are adopted by more and more people – to which the optimal response requires the introduction of a new, “superior” product (Pesendorfer 1995). Our data also allows us to examine how the social dimension of awards shaped their effects. While a priori, status competition could sharpen or dull incentives, there is ample anecdotal evidence that it was a key motivating force. For example, during the Battle of Britain in the summer of 1940, two German pilots – Adolf Galland and Werner Mölders – were neck-and-neck in terms of total victories. When Mölders was ordered to confer with the head of the Luftwaffe, Hermann Göring, he went to Berlin for three days of meetings – but on the condition that Galland would also be grounded for the same number of days. Remarkably, at a time when the air battle against Britain hung in the balance, Göring (himself a WWI fighter ace) accepted that one of his top-scoring pilots would be grounded gratuitously. Combining data on social distance in pre-existing networks with the timing of awards, we show that public recognition actually crowded in effort: Peers of pilots who were publicly recognized tried harder, increasing their score of aerial victories significantly during the months in question. This is particularly true among the best pilots (i.e., those more likely to be successful in being publicly recognized after they tried harder), and of those who were closest in terms of social distance to the pilot receiving the award. Pilots who had flown in the same squadron in the past as the new award holder upped their score by a lot; those who had only served on the same airbase, by a little.