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Tournaments: There Is More Than Meets the Eye

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Author Info
Epstein, Gil S
Nitzan, Shmuel

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Abstract

According to the well-established tournament literature, incomplete information regarding employees’ productivity is essential for the rationalization of (efficiency-enhancing) tournaments. In this Paper we propose an alternative rationalization of tournaments focusing on a fully informed principal whose objective is to maximize a weighted average of the profitability (productivity) of their team and of the promotion-seeking efforts of their employees. Our first main result clarifies the conditions under which the principal has an incentive to create a tournament that determines the promoted employee. We then examine the effect of the employees' productivity on their probability of promotion and on the extent of the resources wasted in the tournament. In particular, we specify the conditions that ensure that the most productive employee (the natural candidate for promotion) is less likely to be promoted and the conditions under which higher employee's productivity results in increased wasted promotion-seeking efforts.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4306.

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Date of creation: Mar 2004
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Handle: RePEc:cpr:ceprdp:4306

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Related research
Keywords: promotion; tournaments; wasted efforts;

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Find related papers by JEL classification:
D20 - Microeconomics - - Production and Organizations - - - General
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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References listed on IDEAS
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  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Epstein, Gil S. & Nitzan, Shmuel, 2002. "Politics of Randomness," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June. [Downloadable!] (restricted)
  4. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September. [Downloadable!] (restricted)
    Other versions:
  5. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June. [Downloadable!] (restricted)
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