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Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments

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Author Info

  • Altmann, Steffen

    ()
    (IZA)

  • Falk, Armin

    ()
    (University of Bonn)

  • Wibral, Matthias

    ()
    (University of Bonn)

Abstract

Promotion tournaments play an important role for the provision of incentives in firms. In this paper, we extend research on single-stage rank-order tournaments and analyze behavior in multi-stage elimination tournaments. The main treatment of our laboratory experiment is a two-stage tournament in which equilibrium efforts are the same in both stages. We compare this treatment to a strategically equivalent one-stage tournament and to another two-stage tournament with a more convex wage structure. Confirming previous findings average effort in our one-stage treatment is close to Nash equilibrium. In contrast, subjects in our main treatment provide excess effort in the first stage both with respect to Nash predictions and compared to the equivalent one-stage tournament. The results for the more convex two-stage tournament show that excess effort in the first stage is a robust finding and that subjects react only weakly to differences in the wage structure.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3835.

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Length: 26 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3835

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Keywords: personnel economics; tournament; incentives; laboratory experiment;

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References

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  1. Belzil, Christian & Bognanno, Michael L., 2005. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," IZA Discussion Papers 1630, Institute for the Study of Labor (IZA).
  2. Dohmen, Thomas & Falk, Armin, 2006. "Performance Pay and Multi-dimensional Sorting: Productivity, Preferences and Gender," IZA Discussion Papers 2001, Institute for the Study of Labor (IZA).
  3. Eriksson, Tor & Teyssier, Sabrina & Villeval, Marie Claire, 2006. "Self-Selection and the Efficiency of Tournaments," IZA Discussion Papers 1983, Institute for the Study of Labor (IZA).
  4. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
  5. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005. "Contests for Status," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  7. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects and the Earnings Dynamics of American executives," Post-Print halshs-00354270, HAL.
  8. Harbring, Christine & Irlenbusch, Bernd, 2008. "How many winners are good to have?: On tournaments with sabotage," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 682-702, March.
  9. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  10. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  11. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-24, December.
  12. Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 155-79, April.
  13. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  14. 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.
  15. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  16. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  17. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
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Citations

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Cited by:
  1. Stracke, Rudi & Höchtl, Wolfgang & Kerschbamer, Rudolf & Sunde, Uwe, 2012. "Optimal Prizes in Dynamic Elimination Contests: An Experimental Analysis," Economics Working Paper Series 1208, University of St. Gallen, School of Economics and Political Science.
  2. Rudi Stracke & Wolfgang Höchtl & Rudolf Kerschbamer & Uwe Sunde, 2014. "Optimal prizes in dynamic elimination contests: Theory and experimental evidence," Working Papers 2014-08, Faculty of Economics and Statistics, University of Innsbruck.
  3. Tonin, Mirco & Vlassopoulos, Michael, 2012. "Social Incentives Matter: Evidence from an Online Real Effort Experiment," IZA Discussion Papers 6716, Institute for the Study of Labor (IZA).
  4. Mirco Tonin & Michael Vlassopoulos, 2014. "Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment," CESifo Working Paper Series 4778, CESifo Group Munich.
  5. Shakun D. Mago & Roman M. Sheremeta, 2012. "Multi-Battle Contests: An Experimental Study," Working Papers 12-06, Chapman University, Economic Science Institute.
  6. Tanja Hörtnagl & Rudolf Kerschbamer & Rudi Stracke & Uwe Sunde, 2013. "Heterogeneity in Rent-Seeking Contests with Multiple Stages: Theory and Experimental Evidence," CESifo Working Paper Series 4435, CESifo Group Munich.
  7. Charness, Gary & Cobo-Reyes, Ramón & Lacomba, Juan A. & Lagos, Francisco & Pérez, José María, 2013. "Social Comparisons in Wage Delegation: Experimental Evidence," IZA Discussion Papers 7802, Institute for the Study of Labor (IZA).
  8. repec:dgr:uvatin:2011120 is not listed on IDEAS
  9. Stefano Caria & Paolo Falco, 2014. "Do employers trust workers too little? An experimental study of trust in the labour market," CSAE Working Paper Series 2014-07, Centre for the Study of African Economies, University of Oxford.
  10. Herbst, Luisa & Konrad, Kai A. & Morath, Florian, 2013. "Endogenous group formation in experimental contests," Discussion Papers, Research Unit: Economics of Change SP II 2013-301, Social Science Research Center Berlin (WZB).
  11. Magnus Hoffmann & Martin Kolmar, 2013. "Distributional Preferences in Probabilistic and Share Contests," CESifo Working Paper Series 4184, CESifo Group Munich.
  12. Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2012. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," IZA Discussion Papers 6480, Institute for the Study of Labor (IZA).
  13. Herbst, Luisa & Konrad, Kai A. & Morath, Florian, 2013. "Endogenous group formation in experimental contests," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 419, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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