AbstractIn their seminal contribution Lazear and Rosen (1981) show that wages based upon rank induce the same e¢ cient e¤ort as incentive-based reward schemes. They also show that this equivalence result is not robust towards heterogeneity in worker ability, as long as ability is private information, as it is not possible to structure contests to simultaneously satisfy self-selection constraints and first best incentives. This paper demonstrates that efficiency is achievable by a simple modification of the prize scheme in a mixed (heterogenous) contest. In the L&R contest, the winner's prize as well as the loser's prize are fixed in advance. In this paper I demonstrate that efficiency is restored by a modification of contest design, in which contestants choose from a menu of prizes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10906.
Date of creation: Apr 2008
Date of revision:
Tournaments; Labor Contracts;
Find related papers by JEL classification:
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-13 (All new papers)
- NEP-CTA-2008-10-13 (Contract Theory & Applications)
- NEP-LAB-2008-10-13 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
- Bengt Holmstrom, 1979.
"Design of Incentive Schemes and the New Soviet Incentive Model,"
Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science
456, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Holmstrom, Bengt, 1982. "Design of incentive schemes and the new Soviet Incentive model," European Economic Review, Elsevier, Elsevier, vol. 17(2), pages 127-148.
- 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.
- Theofanis Tsoulouhas & Charles R. Knoeber & Anup Agrawal, . "Contests to Become CEO: Incentives, Selection and Handicaps," Working Paper Series, North Carolina State University, Department of Economics 002, North Carolina State University, Department of Economics, revised Jul 2004.
- Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(4), pages 867-81, August.
- Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
- Yeon-Koo Che & Ian Gale, 2000.
"Optimal Design of Research Contests,"
Econometric Society World Congress 2000 Contributed Papers, Econometric Society
1784, Econometric Society.
- Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 646-671, June.
- Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
- O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(1), pages 27-56, January.
- Eriksen, Kristoffer W. & Kvaløy, Ola & Olsen, Trond E., 2008.
"Tournaments with prize-setting agents,"
Discussion Papers, Department of Business and Management Science, Norwegian School of Economics
2008/23, Department of Business and Management Science, Norwegian School of Economics.
- Kristoffer W. Eriksen & Ola Kvaløy & Trond E. Olsen, 2011. "Tournaments with Prize‐setting Agents," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 113(3), pages 729-753, 09.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.