Publication Date: May 2016
Status is greatly valued in the real world, yet it has not received much attention from economic theorists. We examine how the owner of a ﬁrm can best combine money and status to get her employees to work hard for the least total cost. We ﬁnd that she should motivate workers of low skill mostly by status and high skill mostly by money. Moreover, she should do so by using a small number of titles and wage levels. This often results in star wages to the elite performers. By analogy, the governance of a society should pay special attention to the status concerns of ordinary citizens, which may often be accomplished by reinforcing suitable social norms.
Status, Incentives, Wages
JEL Classification Codes: C70, I20, I30, I33