The optimality of heterogeneous tournaments
AbstractWe investigate the effect of employee heterogeneity on the incentive to put forth effort in a market-based tournament. Employers use the tournament's outcome to estimate employees' abilities and accordingly condition their wage offers. Employees put forth effort, because by doing so they increase the probability of outperforming the rival, thereby increasing their ability assessment and thus the wage offer. We demonstrate that the tournament outcome provides more information about employees' abilities in case they are heterogeneous. Thus, employees get a higher incentive to affect the tournament outcome, and employers find it optimal to hire heterogeneous contestants. --
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Bibliographic InfoPaper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number IF42V1.
Date of creation: 2013
Date of revision:
tournament; competitive labor market; heterogeneity; learning;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-CTA-2013-01-26 (Contract Theory & Applications)
- NEP-HRM-2013-01-26 (Human Capital & Human Resource Management)
- NEP-LAB-2013-01-26 (Labour Economics)
- NEP-MIC-2013-01-26 (Microeconomics)
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