We show that if agents are risk neutral, prizes outperform wages when there is suﬀicient pride and envy relative to the noisiness of performance. If agents are risk averse, prizes are a necessary supplement to wages (as bonuses).
Dubey, Pradeep; Geanakoplos, John; and Haimanko, Ori, "Prizes versus Wages with Envy and Pride" (2005). Cowles Foundation Discussion Papers. 1824.