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Precision in U-Type and J-Type Tournaments

Author

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  • Anja Schöttner

Abstract

In this paper I contrast the impact of precision, i.e., the level of accuracy with which workers’ performance is assessed, on wage costs in U- and J-type tournaments. In U-type tournaments prizes are fixed. In J-type tournaments only an overall wage sum is specified. The principal can increase precision by including more signals in performance measurement. Doing so leads to stronger incentives in U-type tournaments, but not in J-type tournaments. The principal strictly prefers a U-type tournament if workers receive a rent under limited liability and the costs of increasing precision are low. However, if workers are inequity-averse and have unlimited liability, the J-type tournament leads to lower wage costs.

Suggested Citation

  • Anja Schöttner, 2005. "Precision in U-Type and J-Type Tournaments," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 57(2), pages 167-192, April.
  • Handle: RePEc:sbr:abstra:v:57:y:2005:i:2:p:167-192
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    Cited by:

    1. Matthias Kräkel, 2006. "Zur Reform der Professorenbesoldung in Deutschland," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 105-126, February.

    More about this item

    Keywords

    Inequity Aversion; Precision; Tournaments.;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • 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

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