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When higher prizes lead to lower efforts—The impact of favoritism in tournaments

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  • Herbertz, Claus
  • Sliwka, Dirk

Abstract

We investigate the relationship between tournament prices and effort choices in the presence of favoritism. High tournament prizes can decrease agents’ effort supply when the choice of the winner is not perfectly objective but affected to some extent by personal preferences of an evaluator.

Suggested Citation

  • Herbertz, Claus & Sliwka, Dirk, 2013. "When higher prizes lead to lower efforts—The impact of favoritism in tournaments," Economics Letters, Elsevier, vol. 120(2), pages 188-191.
  • Handle: RePEc:eee:ecolet:v:120:y:2013:i:2:p:188-191
    DOI: 10.1016/j.econlet.2013.03.015
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    References listed on IDEAS

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    1. 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 841-864, October.
    2. James A. Fairburn & James M. Malcomson, 2001. "Performance, Promotion, and the Peter Principle," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 45-66.
    3. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
    4. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    5. Jan Zábojník & Dan Bernhardt, 2001. "Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 693-716.
    6. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
    7. Margaret A. Meyer, 1992. "Biased Contests and Moral Hazard: Implications for Career Profiles," Annals of Economics and Statistics, GENES, issue 25-26, pages 165-187.
    8. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    9. Hoffler, Felix & Sliwka, Dirk, 2003. "Do new brooms sweep clean? When and why dismissing a manager increases the subordinates' performance," European Economic Review, Elsevier, vol. 47(5), pages 877-890, October.
    10. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-978, October.
    11. Berger, Johannes & Herbertz, Claus & Sliwka, Dirk, 2011. "Incentives and Cooperation in Firms: Field Evidence," IZA Discussion Papers 5618, Institute for the Study of Labor (IZA).
    12. repec:adr:anecst:y:1992:i:25-26:p:08 is not listed on IDEAS
    13. Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 867-881, August.
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    Cited by:

    1. Babington, Michael & Goerg, Sebastian J. & Kitchens, Carl, 2017. "Do Tournaments with Superstars Encourage or Discourage Competition?," IZA Discussion Papers 10755, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Incentives; Favoritism; Nepotism; Tournaments;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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