Working Paper: CEPR ID: DP15672
Authors: Anja Prummer; Francesco Nava
Abstract: Does an employer benefit from inducing differential value distributions for a promotion among his workers? Workers compete by exerting effort and higher effort corresponds to higher profit for the employer. Introducing inequalities in valuations makes workers' value more easily recognisable, reducing their information rent, which in turn increases effort. At the same time, inequalities lead to differences in promotion attainment, even if realised values are identical. This corresponds to a decrease in competition. We show that if value is re-distributed, the reduction in information rent outweighs the loss in competition, making discrimination between workers optimal.
Keywords: discrimination; mechanism design; information design; culture
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employer's Action (Manipulating Value Distributions) (J79) | Worker Valuation (Differential Valuations) (J31) |
| Worker Valuation (Differential Valuations) (J31) | Information Rent Reduction (R21) |
| Information Rent Reduction (R21) | Increased Worker Effort (J29) |
| Increased Worker Effort (J29) | Higher Firm Profit (D21) |