Bruno S. Frey - Honours versus Money: The Economics of Awards

People are not only motivated by money. The desire to be recognized is a fundamental trait of human beings. Awards are well suited to fulfil this desire. For time immemorial, an innumerable variety of awards have existed in all countries and spheres of life.

Monarchs as well as presidents of republican countries bequeath orders and medals, such as the Order of the Garter given by the British Queen or the Presidential Medal of Freedom given by the American President. In the arts, the Man Booker Prize is given to writers, the Pritzker Prize to architects, the Oscars to film stars, the Grammy Awards to personalities in the music industry, and the Pulitzer Prize to journalists. The military abundantly use honours to remunerate and recognize soldiers and officers, including deceased ones. The Victoria Cross is a particularly important example, as it ranks on top of the honours system in the UK.

Awards are also most numerous in two areas where they would not necessarily be expected. In academia, where all that counts is expected to be the pursuit of knowledge, there are a great many awards. They range from honorary doctorates to the Nobel Prizes. Likewise, in business, money is taken to rule supreme. But in fact firms and other organizations hand out many different awards. The Employee of the Month or Manager of the Year are just two particularly well-known examples, but there are numerous other awards in the corporate sector.

In contrast to this obviously great importance stands the neglect of awards in economic science. The emphasis has for a long time been lying almost solely on monetary incentives, such as the various forms of pay-for-performance and bonuses. This may be attributed to the characteristics of monetary incentives, which are simple to administer, fungible for their recipients, and in line with the dominant commercialization of our contemporary societies.

But why are there so many awards? There is a straightforward answer. What human beings strongly strive for are honour, recognition, and attention. These desires are particularly well met by awards. When bequeathed, the recipients are explicitly and publicly lauded for their extraordinary achievements.

Our book analyses honours from an economic perspective, i.e. using economic theory and empirical methods. As far as we are aware, this is the first book offering a general analysis in this vein. It differs fundamentally from the science of orders and decoration, called phaleristics, as well as from historical and sociological treatises of the topic. We discuss the use of awards in different areas of society and explore the differences between awards and monetary compensation as well as other material and immaterial benefits. We integrate the economic analysis of awards into economic and business theory, including signalling and strategic management theory. Based on our own research, in which we empirically analyse the effects of honours on productivity in academia and the voluntary sector, we conclude that awards have great potential to significantly raise peoples motivation and performance. Finally, we explore some of the areas and tasks where awards are particularly well suited, and where they may be superior to other motivators.

Our book intends to make a contribution to several literatures. After each chapter, we provide a brief discussion of the literature related to the specific topics covered.

This book builds on a series of articles, partly written together with Susanne Neckermann, Reto Cueni, Benno Torgler, and Ho Fai Chan. Parts of the work have previously been presented at universities and other scholarly institutions in Switzerland, Germany, Austria, France, Denmark, the Netherlands, Spain, the United Kingdom, and the United States, as well as at numerous scholarly conferences in various countries.

We are grateful for comments received on several occasions by so many scholars that it is impossible to name them all. For the specific case of state orders, we had the unique opportunity to interview the late Professor Roman Herzog, former President of the Federal Republic of Germany, for which we are most grateful. We also greatly appreciate the insights provided by the Nobel Prize winners in Economics, Sir James Mirrlees and Joseph Stiglitz.

We moreover want to explicitly mention Bruce Ackerman, John Armour, Stephan Bechtold, Christine Benesch, Tim Besley, Trine Bille, Iris Bohnet, Bob Cooter, Reto Cueni, Giuseppe Dari-Mattiacci, Reiner Eichenberger, Christoph Engel, Lars Feld, Gerd Folkers, Robert Frank, Ren Frey, Jonas Friedrich, Victor Ginsburgh, Fernando Gomez, Andrew Guzman, Henry Hansmann, Dirk Helbing, Jrg Helbling, Grard Hertig, Gebhard Kirchgssner, Kai Konrad, Lewis Kornhauser, Siegwart Lindenberg, Simon Lchinger, Karl Ulrich Mayer, Stephan Meier, Felix Oberholzer-Gee, Karl-Dieter Opp, the late Elinor Ostrom, Andrew Oswald, Katharina Pistor, Susan Rose-Ackerman, Christoph Schaltegger, Friedrich Schneider, Hans-Werner Sinn, Lasse Steiner, Alois Stutzer, and Hannelore Weck-Hannemann. In particular, we thank Evelyn Holderegger and Jonas Friedrich for carefully checking the manuscript, and Margit Osterloh and Gregor Martynus for their continuous and wonderful psychic and practical support.