Altruistic Values by High and Low Productivity Employees

Under Bob Frank's model of relative position, more productive employees pay for their higher position relative to their less productive peers.  The result is that pay within a group of employees, such as faculty in an academic department, is substantially more compressed in an egalitarian direction than their productivity.  The microfoundational basis for why higher productivity employees pay is that they value deference and higher rank, which they cannot get as effectively by banding together with other high-productivity employees as they can by working with peers who are less productive.  Although Frank's model can be understood in terms of pure egoism, it offers a much more powerful lens into reality if one accepts the assumption--a highly plausible one, in my view--that people have competitive preferences as well as egoistic ones. 

The interaction between the high productivity employees and their low productivity peers can be modeled as a leadership game.  We may assume that both players do badly in the event of a leadership conflict in which they cannot agree on whether, or how much, the high productivity player pays for rank; the leader does best and the follower does adequately if they agree on an arrangement favoring either the high or the low productivity player; neither side does too well or too badly if neither side asserts itself.  

It is intuitive that if either side can commit itself to leading, it has an advantage over the other.  On the face of it, the reverse is true for a player who embraces the idea of following the other player's leadership.  Such a player--a high productivity player who likes the idea of paying a high tax for his or her rank or a low productivity player who believes that the high productivity player should not have to pay for a leading position--would seem to be at a major disadvantage in the leadership game.

The altruist who values following the other's leadership is indeed at a disadvantage if his or her preferences cause her to play following as a dominant strategy.  But it is not likely that valuing the other's leadership will in fact produce that counterproductive result.  If the other player follows, the altruist may be assume to have a preference for leading, just as the egoist does. W

What valuing following the other's leadership is very likely to do is to create a game in which the other player realizes that the altruist has a very large difference between his or her payoffs when the other leads and a smaller one when the other player follows.  The counterintuitive logic of mixed Nash equilibrium leads us to expect that the other player will therefore follow most of the time, resulting in the altruist receiving substantially better payoffs than the other player. 

Hooking back to Bob Frank and his model: Bob himself is a highly productive academic who seems very much fine with a high tax.  Some of us--no names mentioned!--aren't as productive and have ethical qualms about a tax paid by the highly productive.  The suggestion here is both the altruistic highly productive employee--RF we'll call him or her--and the altruistic less productive employee--WE we'll call him or her--may have a belief system that plays out to their advantage.  The altruistic and highly productive RF may find himself getting a bigger raise from the faculty peer evaluation committee than if he were an egoist; the altruistic and not so productive WE likewise may do better in exacting a tax from RF that goes to himself than he would if he were egoistic.

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