The influence of different dimensions of social comparison on performance measure choice and team composition

Empirical research in the economic literature is increasingly addressing the implications of social comparison on incentive contracts by using analytical principal-agent models. Contrary to the existing investigations, which are primarily based on the assumption that individuals exclusively compare monetary income, theories of behavioral science suggest that monetary income and effort represent different dimensions of social comparison, which are weighted individually. Using a LEN framework, the present study focuses on this aspect of social comparisons and discusses how these dimensions and their individual weights affect optimal contract design and contract efficiency. I consider status-seeking agents who compare themselves to each other and differ with regard to their intensity of social preferences and the specific relevance of dimensions. Finally, I draw conclusions for the drafting of contracts with respect to (1) the choice of performance measures and (2) an optimal team composition.