Knight fever: People care for awards - Bruno Frey

Bruno Frey, brilliant as usual makes an important point in this VoxEU short essay:

"Social recognition is a powerful force, and awards ranging from state orders to tournament prizes motivate people in fields ranging from the arts to military service. Here is why economists should take note and study such incentives.
If an alien were to look at the social life of people on earth, it would be stunned by the enormous number of awards in the form of orders, decorations, prizes, and titles. It would be hard pressed to find any area of society in which awards are not used. Awards are equally ubiquitous in monarchies as they are in staunch republics. In the French Republic, for instance, the légion d’honneur plays an important role, and 3,000 such awards are conferred annually. In the United States, the President and Congress bestow highly esteemed medals both for civilians (e.g. the Presidential Medal of Freedom) and for military personnel (e.g. the Congressional Medal of Honor). It is well known that a flood of medals and titles (such as “Hero of the Soviet Union”) were handed out in communist countries, such as the Soviet Union or the German Democratic Republic.
Awards are also of central importance in the arts, culture, and media. A few prominent examples are the Academy Awards (Oscars), the prizes handed out by the film festivals at Cannes, Venice, or Berlin, the Grammy award for artistic significance in the field of recording, and the Brooker or the Pulitzer Prize in literature. In sports, athletes receive the honour of being chosen “Sports Personality of the Year” and of being admitted into one of the many Halls of Fame.
Despite the importance of awards in society, economists have largely disregarded them. While some literatures in economics, such as the literatures on signalling, tournaments, and incentives in principal-agent relationships, or the more recent works in psychological economics on esteem, identity, status, and reputation provide insights into isolated aspects of awards, they are hardly able to capture and reveal the many different aspects involved in the functioning of awards.

Standard economics concentrates on monetary compensation because it is a fungible and efficient incentive mechanism (Prendergast, 1999). Recently, intrinsic motivation has also been taken into account (Bénabou and Tirole, 2006 and Frey, 1997). Awards are intermediate; they are extrinsic but predominantly non-material. There are important differences between awards and monetary compensation making it worthwhile to analyze them separately.
The material costs of awards may be very low, or even nil, for the donor, but the value to the recipient may be very high.
Awards are always made public. In the case of companies, award recipients are announced on the intranet, displayed on bulletin boards, or celebrated in a specially arranged ceremony. In contrast, the size of monetary compensations, i.e. salaries, tends to be hidden.
Accepting an award establishes a special relationship, in which the recipient owes (some measure of) loyalty to the donor. Monetary compensation in contrast typically does not induce loyalty.
Due to their vague nature and global, ex-post performance evaluations, awards are better incentive instruments than monetary payments that typically have to be clearly specified contractually ex ante, when the recipients’ performance can only vaguely be determined ex ante and/or measured ex post.
Awards are not taxed, while monetary income is.
These considerations make clear that there are indeed many major differences between awards and monetary compensation..."

More here.