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Yes Men in Tournaments

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  • Jason G. Cummins
  • Ingmar Nyman

Abstract

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition can turn employees into yes men who make investment decisions that excessively agree with preconceived notions. The specter of yes-man behavior may drive the tournament incentive intensity and the employees' information-collection effort either to zero or above the first-best efficient levels. We also show that yes-man problems are alleviated by a stronger correlation between the employees' sources of uncertainty and by the use of individual compensation contracts rather than a tournament.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 169 (2013)
Issue (Month): 4 (December)
Pages: 621-659

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201312)169:4_621:ymit_2.0.tx_2-2

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  1. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, vol. 43(3), pages 593-616, July.
  2. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
  3. Jason G. Cummins & Ingmar Nyman, 2005. "The Dark Side of Competitive Pressure," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 361-397, Summer.
  4. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  5. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
  6. Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc.
  7. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  8. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  9. Prendergast, Canice, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 523-34, May.
  10. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  11. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  12. Drago, Robert & Garvey, Gerald T, 1998. "Incentives for Helping on the Job: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 1-25, January.
  13. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 147-49, January.
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