A central problem for every firm is to ensure that workers provide effort, especially when that effort is hard to monitor. While financial incentives such as performance bonuses and sales commissions are effective (Lazear 2018), they are also expensive.

Can firms do better? A growing body of literature suggests that non-financial rewards can leverage the human desire for social status (Besley and Ghatak 2008, Ashraf and Bandiera 2018). As shown with platinum credit cards or workplace awards, people are willing to pay a premium or exert significant effort to distinguish themselves from others (Bursztyn et al. 2018, Moldovanu et al. 2007). Unlike money, status is inherently relative. In a zero-sum game of social ranking, my rise is your fall. This creates an opportunity for a dynamic incentive system to exploit – or engineer – a never-ending cycle of goal chasing.

In a recent paper (Bursztyn et al. 2026), we investigate whether an organisation can tap into status-seeking behaviour to repeatedly motivate top performers. We study a setting with high stakes, clear outputs, and autonomous agents: aerial combat during World War II.

The Luftwaffe’s ‘rat race’

The German armed forces (Wehrmacht) faced a classic principal-agent problem. Without taking the risk of death, pilots could not hope to shoot down opposing planes. Figure 1 shows the trade-off, by pilot quality quintile. The slope of the downward-sloping lines shows how well different groups converted risk (on the x-axis) into aerial victories (on the y-axis). Performance differences were dramatic – at an expected survival rate of 80%, the top 20% pilots scored twice as many victories as the next 20%.

Figure 1 Risk-return trade-off for fighter pilots

Notes: Both victories and survival are standardised. Quality derived from victory rates, adjusting for teammates and other environmental factors.
Source: Bursztyn et al. (2026).

Pilots therefore had to take extreme risks to shoot down enemy aircraft, but the Luftwaffe had limited leeway to offer instrumental benefits like salary hikes or safer postings. Instead, they engineered a sophisticated system of status incentives: the Knight’s Cross (Ritterkreuz).

The Knight’s Cross was not a static award. It was an expanding ladder. As the war progressed and the initial medal became ‘too common’ among elites, the High Command introduced successively more exclusive variants: first adding Oak Leaves, then Swords, then Diamonds, and finally Golden Oak Leaves.

Using a dataset of over 5,000 German fighter pilots, we analyse monthly victory rates to measure how this hierarchy influenced behaviour. The data demonstrate that the Luftwaffe successfully engineered a ‘rat race’ that extracted significant additional effort from its best pilots.

The ‘in-zone’ effect

Awards in the German system were ostensibly discretionary but governed by informal quotas – a specific number of aerial victories required to be considered for the next medal. Pilots knew these quotas and tracked their own tallies obsessively.

We use an event-study design to track pilot performance as they approached these thresholds. It shows a striking behavioural pattern:

1. The anticipation spike: As pilots enter the ‘zone’ (getting close to the required victory tally), their performance accelerates sharply. They take more risks and score more kills. We estimate that the prospect of the first medal alone induced an additional six victories per ace pilot – a massive increase given that the median pilot in our sample scored only three victories in their entire career.
2. The post-award slump: Immediately upon receiving the award, effort drops back to baseline levels. The goal is achieved, and the incentive disappears.
3. The treadmill: Crucially, this effort path repeats itself. As a pilot approaches the quota for the next tier of the medal (e.g. the Oak Leaves), performance spikes again.

This suggests that status incentives are not a one-and-done tool. If the ladder is long enough, workers will repeatedly sprint to reach the next rung (Figure 2).

Figure 2 Additional aerial victories as pilots approach quotas: Medals 1 and 2

Source: Bursztyn et al. 2026.

Medals as fashion cycles

Why did the Luftwaffe keep adding new medals? We argue this follows the logic of fashion cycles (Pesendorfer 1995). Status goods are signals. Their value depends on the exclusivity of the group that possesses them. Our data show a clear ‘cheapening’ effect: the earliest recipients of the Knight’s Cross were the most skilled pilots. Over time, as the war dragged on, the award diffused to lower-ranked (though still elite) pilots.

For the very best aces, the Knight’s Cross eventually lost its signalling value. It no longer distinguished them from the merely very good. To keep these top performers motivated, the armed forces had to introduce a new tier of the status good – a rarer medal. We show that high-ability pilots who were sensitive to status concerns increased their effort immediately when a new medal tier was introduced, even if they were still far from qualifying. The mere existence of a higher peak to climb re-engaged them in the race.

Status substitutes and aggregates

Interestingly, not everyone played the game. Pilots who possessed alternative sources of high status – aristocrats, senior officers, or those with other distinctions – were significantly less responsive to the medal incentives. This confirms that the medals functioned as substitutes for other forms of social status. The rat race was most effective for pilots who had no other way to signal their quality than through the accumulation of these specific awards.

The aggregate impact of this system was substantial. We estimate that the incentive effects of the Knight’s Cross system generated between 3,000 and 5,000 additional aerial victories. To put this in perspective, achieving this result without the medal system would have required deploying roughly 1,000 additional pilots – a resource the fuel-starved Luftwaffe did not have.

Conclusion

The German air force effectively engineered a system where enough is never enough. By carefully calibrating a hierarchy of awards, they leveraged the competitive nature of highly talented young pilots.

For modern organisations, the implications are clear. Status rewards can be powerful, but they are subject to depreciation. As existing awards are handed to more and more people, their signalling value declines. Firms can engineer status treadmills to counteract this: to keep the top performers running, the firm must constantly invent new ways for them to distinguish themselves from the crowd.

References

Ashraf, N, and O Bandiera (2018), “Social incentives in organizations”, Annual Review of Economics 10: 439–63.

Besley, T, and M Ghatak (2008), “Status incentives”, American Economic Review 98(2): 206–11.

Bursztyn, L, E Rawcliffe, and H-J Voth (2026), “Never enough: Dynamic status incentives in organizations”, CEPR Discussion Paper 21121.

Bursztyn, L, B Ferman, S Fiorin, M Kanz, and G Rao (2018), “Status goods: Experimental evidence from platinum credit cards”, Quarterly Journal of Economics 133(3): 1561–95.

Lazear, E P (2018), “Compensation and incentives in the workplace”, Journal of Economic Perspectives 32(3): 195–214.

Moldovanu, B, A Sela, and X Shi (2007), “Contests for status”, Journal of Political Economy 115(2): 338–63.

Pesendorfer, W (1995), “Design innovation and fashion cycles”, American Economic Review 85(4): 771–92.