Measuring the welfare and spillover effects of rank information

Abstract

Rank information is often provided to improve task performance; however, its welfare and spillover effects have rarely been measured. To fill this gap, we conduct a controlled laboratory experiment in which participants complete a simple cognitive task and report their willingness-to-pay (WTP) to receive or avoid rank information provided in different manners and then make choices in subsequent games. We find that providing rank information with a full public announcement improves performance; however, the unconditional WTP results suggest that doing so brings a negative shift in the overall welfare of the participants in comparison to a partial or no announcement. Based on conditional WTP data, we find that participants' social comparison utilities are on average positive; it is the case even conditional on low rankings. In contrast, the public recognition utilities can be negative, while their negativity is reduced by adopting a partial announcement scheme, in which only the rankings of those among the top third are announced. Estimates from a structural estimation indicate that the partial public announcement scheme together with financial incentives is the most socially efficient intervention combination. Finally, no spillover effects are found in subsequent games.