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Dynamically Sabotage-Proof Tournaments

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  • Junichiro Ishida

    (Graduate school of Economics, Osaka University)

Abstract

This paper examines a two-period tournament where agents may possibly engage in destructive sabotage activities. Under plausible circumstances, sabotage proves to be an effective tool for low-ability agents, especially when they are faced with high-ability agents. The possibility of sabotage then gives rise to a dynamic concern, similar to the Ratchet effect, because an agent runs a risk of becoming the target of sabotage by signaling his high ability in early stages. In this dynamic setting, we first establish an impossibility result where the mere possibility of sabotage makes it impossible to implement the first-best effort due to this dynamic concern. Given this result, we then offer two distinct incentive schemes, fast track and late selection, to circumvent this problem. The fast-track scheme is likely to prevail when the production process values diversity in inputs (submodular technologies) while the late-selection scheme is to prevail when it values homogeneity (supermodular technologies). The present model thus offers a mechanism through which both fast track and late selection arise in a unified framework, which can explain the difference in managerial practices between the US and Japan.

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File URL: http://www.osipp.osaka-u.ac.jp/archives/DP/2006/DP2006E001.pdf
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Bibliographic Info

Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number 06E001.

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Length: 27 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:osp:wpaper:06e001

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Related research

Keywords: Sabotage; Tournament; Fast track; Late selection; Supermodularity; Submodularity;

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References

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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.
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  8. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  9. Bentley MacLeod & James M. Malcomson, 1985. "Reputation and Hierarchy in Dynamic Models of Employment," Working Papers 628, Queen's University, Department of Economics.
  10. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
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  12. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-70, October.
  13. Michael Waldman, 2003. "Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 27-41, January.
  14. Pierre-Andre Chiappori & Bernard Salanie & Julie Valentin, 1999. "Early Starters versus Late Beginners," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 731-760, August.
  15. 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.
  16. Ishida, Junichiro, 2004. "Signaling and strategically delayed promotion," Labour Economics, Elsevier, vol. 11(6), pages 687-700, December.
  17. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  18. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  19. 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.
  20. Junichiro Ishida, 2006. "Optimal Promotion Policies with the Looking-Glass Effect," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 857-878, October.
  21. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
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Citations

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Cited by:
  1. Gürtler, Oliver & Münster, Johannes, 2013. "Rational self-sabotage," Mathematical Social Sciences, Elsevier, vol. 65(1), pages 1-4.
  2. Gürtler, Oliver & Münster, Johannes, 2009. "Sabotage in dynamic tournaments," Discussion Papers, Research Unit: Market Processes and Governance SP II 2009-06, Social Science Research Center Berlin (WZB).
  3. Subhasish M. Chowdhury & Oliver Gurtler, 2013. "Sabotage in Contests: A Survey," University of East Anglia Applied and Financial Economics Working Paper Series 051, School of Economics, University of East Anglia, Norwich, UK..
  4. Junichiro Ishida, 2012. "Promotion without Commitment: Signaling, Time Inconsistency and Decentralization of the Firm," ISER Discussion Paper 0843, Institute of Social and Economic Research, Osaka University.

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