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Awards such as orders, medals, and decorations are a global phenomenon; they exist everywhere in society and in all times. They serve as signals to indicate generally socially desired behavior as well as motivators for individual persons. Awards in the form of orders, crosses, decorations, prizes, and titles are nonmaterial but extrinsic incentives.

The realm of awards is vague. The semantics are unclear, and the various types of awards are not well defined. These unclear distinctions are no accident but an important feature of awards. The suppliers of awards have an incentive to differentiate awards at many different levels and to create continually new awards.

Awards are not just an indirect way of monetary compensation. There are major differences between awards and money, making it worthwhile to analyze awards as a separate phenomenon:

  • The material costs of awards, consisting of a certificate for the wall or a small trophy, are typically low for the donors, but the value to the recipients may be very high.
  • Accepting an award establishes a special relationship, in which the recipient owes (some measure of) loyalty to the donor. This is not true for monetary compensation.
  • As a result of their vague nature, awards are more adequate incentive instruments than monetary payments when the recipient's performance can only be vaguely determined.
  • Awards are less likely to crowd out the intrinsic motivation of their recipients than monetary compensation.
  • Awards are not taxed, while monetary income is. In countries with high marginal taxes, it is therefore relatively more attractive to receive an untaxed award than to receive a highly taxed monetary compensation.

Awards Are Ubiquitous

It is well known that a flood of orders, medals, and titles (such as “Hero of the Soviet Union” or “Hero of Socialist Labour”) were handed out in communist countries, for instance, in the Soviet Union or the German Democratic Republic. Such behavior is typical for both right- and left-wing dictatorships. But awards also play a large role in republics and democracies. Awards are equally ubiquitous in monarchies as in staunch republics. In the French Republic, for instance, the légion d'honneur plays an important role, and that nation actually confers 3,000 awards annually, which is four times higher than Britain. In the United States, the president and Congress bestow medals, while Purple Hearts, Bronze Stars, and Silver Stars are handed out liberally and at an increasing rate in the military service.

The shorter the time horizon of the politicians, the more they rely on awards because the costs, in the form of award inflation, will only occur in the future. Before his resignation in 1976, the British prime minister, Harold Wilson, did great harm to the honors system by handing out a large number of awards to Labour supporters. When a regime fears for its survival, there is a great incentive to try to forestall this fate by using awards as incentives to supporters. Examples are the German Iron Cross, established in 1813, and highly esteemed up until the 20th century. But it lost much of its luster when it was given out to 5.4 million soldiers in World War I, in which 13.2 million German soldiers were engaged; on average, 40% of all soldiers received one. As some soldiers received Iron Crosses of several classes, historians estimate that approximately 20% of German soldiers were decorated in this way. Similarly, in World War II, 5 million Iron Crosses were awarded. In both wars, the Germans were on the losing side. The war leaders were, early on, aware of the fact that their chance of winning the war was small and diminishing.

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