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“Yes-Men in Tournaments

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Author Info

  • Ingmar Nyman

    ()
    (Hunter College)

  • Jason G. Cummins

    (Brevan Howard Asset Management)

Abstract

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition for promotion can turn employees into "yes men" who make investment decisions that excessively agree with their supervisor's preconceived notions. Employees become "yes men" when their supervisor's prior opinion is strong and the parties receive little subsequent information. In response to this inefficiency, the firm may intensify the tournament's incentives (e.g., increase the wage raise from promotion), increase the correlation of employees' information (e.g., use tournaments for employees handling similar tasks), reduce the importance of any individual supervisor's prior opinion (e.g., evaluate employees using a committee), or use a different incentive mechanism altogether (e.g., individual contracts).

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File URL: http://arrow.hunter.cuny.edu/research/papers/HunterEconWP417.pdf
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Bibliographic Info

Paper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 417.

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Date of creation: 2007
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Handle: RePEc:htr:hcecon:417

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Keywords: Tournaments; Information Aggregation; Conformity;

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  1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  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. 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.
  5. Matthew Gentzkow & Jesse M. Shapiro, 2006. "Media Bias and Reputation," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 280-316, April.
  6. 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.
  7. 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.
  8. 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.
  9. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 147-49, January.
  10. 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.
  11. 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.
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