Far above others.

Abstract

We study the role of competitiveness, via interpersonal comparisons, in a society or a large organization. We consider a dynamic model of effort provision. Agents gain an extra utility by producing an outcome above a “comparison threshold” derived from the outcomes of their reference group in a random network. There are two different sources of competitiveness: the stringency of the comparison threshold and the weight given to relative performance in the utility function. We find that these two sources operate in opposite directions. Societies with higher competitiveness may not necessarily lead to more competitive outcomes (i.e., higher effort provision). Finally, we show that the effects of an increase in the density and variance of the network crucially depend on the stringency of the comparison threshold.