Documento de Trabajo 2007-04 Facultad de Ciencias Económicas y Empresariales Universidad de Zaragoza EQUALITY VERSUS EQUITY BASED PAY SYSTEMS AND THEIR EFFECTS ON RATIONAL ALTRUISM MOTIVATION IN TEAMS: WICKED MASKED ALTRUISM 1 Javier García Bernal Marisa Ramírez Alesón Universidad de Zaragoza Abstract: This paper analyses the design of optimal incentives in teams both with and without rational altruism. The main contribution of the paper is to study the influence of the incentive function on the altruism parameter chosen by team members. We find that optimal incentive is independent of the presence of rational altruism. Secondly, we compare the welfare loss of equal sharing rules versus second best optimal sharing rules (based on equity). Finally, we distinguish between two sources of rational altruism: 1) the strategic component, and 2) an additional component that reflects wicked behaviour by some agents, reducing the firm’s efficiency. Key words: Rational Altruism, incentives in teams, equity based pay system, wicked masked altruism. JEL codes: D64, M21, D23. 1 This paper was edited in the context of the objectives of the CREVALOR Excellence Research Group recognised by Diputación General de Aragón (SPAIN). The authors are also grateful for the financing received from MEC-FEDER through research Project SEJ2005-07341. Over the years we have received helpful and useful comments on a succession of drafts from Dr Vicente Salas-Fumás. Contact information: Departamento de Economía y Dirección de Empresas. Facultad de Ciencias Económicas y Empresariales. Universidad de Zaragoza. C/ Gran Vía, 2. C.P. 50005. Zaragoza (Spain). E-mail: jgbernal@unizar.es . Phone: (+34) 976 76 27 16. Fax: (+34) 976 76 17 67