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Incentives and selection in promotion contests: Is it possible to kill two birds with one stone?

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  • Rudi Stracke

    ()

  • Wolfgang Höchtl

    ()

  • Rudolf Kerschbamer

    ()

  • Uwe Sunde

    ()

Abstract

This paper investigates whether a designer can improve both the incentive provision and the selection performance of a promotion contest by making the competition more (or less) dynamic. A comparison of static (one-stage) and dynamic (two-stage) contests reveals that this is not the case. A structural change that improves the performance in one dimension leads to a deterioration in the other dimension. This suggests that modifications of the contest structure are an alternative to strategic handicaps. A key advantage of structural handicaps over participant-specific ones is that the implementation of the former does not require prior identification of worker types.

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Bibliographic Info

Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2014-09.

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Length: 41
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:inn:wpaper:2014-09

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Keywords: Promotion Contests; Heterogeneity; Incentives; Selection; Handicapping;

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  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  2. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
  3. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199549603, October.
  4. Dmitry Ryvkin & Andreas Ortmann, 2008. "The Predictive Power of Three Prominent Tournament Formats," Management Science, INFORMS, INFORMS, vol. 54(3), pages 492-504, March.
  5. Theofanis Tsoulouhas & Charles Knoeber & Anup Agrawal, 2007. "Contests to become CEO: incentives, selection and handicaps," Economic Theory, Springer, Springer, vol. 30(2), pages 195-221, February.
  6. Baker, George P & Jensen, Michael C & Murphy, Kevin J, 1988. " Compensation and Incentives: Practice vs. Theory," Journal of Finance, American Finance Association, American Finance Association, vol. 43(3), pages 593-616, July.
  7. Jennifer Brown & Dylan B. Minor, 2011. "Selecting the Best? Spillover and Shadows in Elimination Tournaments," NBER Working Papers 17639, National Bureau of Economic Research, Inc.
  8. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 701-15, September.
  9. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, Springer, vol. 105(3-4), pages 245-53, December.
  10. Prendergast, Canice, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 523-34, May.
  11. Nti, Kofi O, 1999. " Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, Springer, vol. 98(3-4), pages 415-30, March.
  12. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(2), pages 315-39, April.
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