Economics of Awards

●Bruno S. Frey and Susanne Neckermann, “Knight fever: People care for awards”（VOX, 19 July, 2008）

There are important differences between awards and monetary compensation making it worthwhile to analyze them separately.

　・The material costs of awards may be very low, or even nil, for the donor, but the value to the recipient may be very high.
　・Awards are always made public. In the case of companies, award recipients are announced on the intranet, displayed on bulletin boards, or celebrated in a specially arranged ceremony. In contrast, the size of monetary compensations, i.e. salaries, tends to be hidden.
　・Accepting an award establishes a special relationship, in which the recipient owes (some measure of) loyalty to the donor. Monetary compensation in contrast typically does not induce loyalty.
　・Due to their vague nature and global, ex-post performance evaluations, awards are better incentive instruments than monetary payments that typically have to be clearly specified contractually ex ante, when the recipients’ performance can only vaguely be determined ex ante and/or measured ex post.
　・Awards are not taxed, while monetary income is.

●Bruno S. Frey and Susanne Neckermann, “Awards -A View from Psychological Economics（pdf）”（CREMA, Working Paper No. 2008 - 2）