We show that if agents are risk neutral, prizes outperform wages if and only if 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" (2011). Cowles Foundation Discussion Papers. 2192.