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Standard promotion practices versus up-or-out contracts

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  • Suman Ghosh
  • Michael Waldman

Abstract

This article develops a theory concerning the choice between standard promotion practices and up-or-out contracts. Our theory is based on asymmetric learning and promotion incentives. We find that firms employ up-or-out contracts when firm-specific human capital is low and standard promotion practices when it is high. We also find that, if commitment to a wage floor is feasible and effort provision is important, up-or-out is employed when low- and high-level jobs are similar. These results are consistent with many of the settings in which up-or-out is typically observed, such as law firms and academia. Copyright (c) 2010, RAND.

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Bibliographic Info

Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 2 ()
Pages: 301-325

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Handle: RePEc:bla:randje:v:41:y:2010:i:2:p:301-325

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Cited by:
  1. Inés Macho-Stadler & David Pérez-Castrillo & Nicolás Porteiro, 2011. "Optimal Coexistence of Long-term and Short-term contracts in Labor Markets," Working Papers 11.08, Universidad Pablo de Olavide, Department of Economics.
  2. Herbertz, Claus & Sliwka, Dirk, 2013. "When higher prizes lead to lower efforts—The impact of favoritism in tournaments," Economics Letters, Elsevier, vol. 120(2), pages 188-191.
  3. Alessandro Bonatti & Johannes Horner, 2011. "Career Concerns and Market Structure," Cowles Foundation Discussion Papers 1831R, Cowles Foundation for Research in Economics, Yale University, revised Oct 2013.
  4. Alessandro Bonatti & Johannes Horner, 2014. "Career Concerns and Market Structure," Levine's Working Paper Archive 786969000000000929, David K. Levine.
  5. Braz Camargo & Elena Pastorino, 2012. "Learning-by-employing: the value of commitment under uncertainty," Staff Report 475, Federal Reserve Bank of Minneapolis.
  6. Gürtler, Marc & Gürtler, Oliver, 2013. "The optimality of heterogeneous tournaments," Working Papers IF42V1, Technische Universität Braunschweig, Institute of Finance.
  7. Ján Zábojník, 2012. "Promotion tournaments in market equilibrium," Economic Theory, Springer, vol. 51(1), pages 213-240, September.
  8. Prasad, Suraj & Tran, Hien, 2013. "Work practices, incentives for skills, and training," Labour Economics, Elsevier, vol. 23(C), pages 66-76.
  9. Alessandro Bonatti & Johannes Horner, 2012. "Career Concerns with Coarse Information," Levine's Working Paper Archive 786969000000000342, David K. Levine.
  10. Josse Delfgaauw & Otto H. Swank, 2014. "Task-specific Human Capital and Organizational Inertia," Tinbergen Institute Discussion Papers 14-034/VII, Tinbergen Institute.
  11. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
  12. Lehmann, Jee-Yeon, 2011. "Job assignment and promotion under statistical discrimination: evidence from the early careers of lawyers," MPRA Paper 33466, University Library of Munich, Germany.
  13. Waldman, Michael, 2007. "Theory and evidence in internal labor markets," MPRA Paper 5113, University Library of Munich, Germany.
  14. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.

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