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Tournaments: There Is More Than Meets the Eye

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Author Info

  • Epstein, Gil S.

    ()
    (Bar-Ilan University)

  • Nitzan, Shmuel

    ()
    (Bar-Ilan University)

Abstract

By the well established tournament literature, incomplete information regarding the 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 his team and of the promotion-seeking efforts of his 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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1023.

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Length: 21 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1023

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Keywords: tournaments; promotion;

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  1. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  2. 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.
  3. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  4. Gil S. Epstein & Shmuel Nitzan, 2002. "Politics of Randomness," CESifo Working Paper Series 803, CESifo Group Munich.
  5. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
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