Abstract: 

This paper studies why managers choose different compensation schemes for their workers. In an experiment, participants act as managers and choose between a winner-takes-all tournament and an equal-pay scheme for two workers completing a real-effort task. Before making their decision, managers report their beliefs about the expected output and perceived fairness of the two schemes, allowing me to disentangle the roles of productivity beliefs, fairness views, and financial self-interest in compensation design. Most managers believe that tournament incentives generate higher output but perceive them as less fair than equal-pay, implying that a majority face a fairness-productivity trade-off. Without financial stakes, managers frequently prioritize fairness and choose equal-pay despite expecting lower output. When their own compensation is tied to worker output, they become significantly more likely to choose tournament incentives. These findings show that managers' compensation choices are jointly determined by their output beliefs, fairness views, the relative weight they place on these considerations, and the role of financial self-interest in shaping that trade-off.

Abstract: 

To address rising income inequality, governments typically rely on two levers: predistribution policies that determine incomes before they are earned---e.g. minimum-wage laws---and redistribution policies that determine incomes after they are earned---e.g. taxes and transfers. We explore whether support for reducing inequality depends on the choice of policy lever. Using incentivized experiments with the general population of the US and Sweden (N=2528), we study inequality reduction under predistribution and redistribution, focusing on whether the income decision is made before or after income is earned. We find that timing matters: subjects in both countries reduce inequality more under predistribution than redistribution. Furthermore, subjects in the predistribution treatment more often invoke equal effort to justify reducing inequality, while those in the redistribution treatment more often invoke adherence to the initial agreement to justify preserving it. Overall, our results imply that the choice between predistribution and redistribution can influence public support for reducing inequality.erican subjects look almost identical when they make choices over ex ante institutions.

Abstract: 

An influential subset of the literature on distributional preferences studies how preferences condition on characteristics such as workers’ relative productivity. In this study we establish that there are default effects when such conditional fairness preferences are measured using the “inequality acceptance” method. Depending on the default, implemented inequality decreases by over 65% and cross-country differences are not observed. To organize the data, we develop a simple framework in which agents form a reference point based on a combination of the distribution suggested by their fairness ideal and the default. We use this framework to illustrate that choice data from different defaults is needed to separately identify the fairness ideal and effect of the default, and discuss best practices for measuring fairness preferences.