Tournaments: There Is More Than Meets the Eye
According to the well-established tournament literature, incomplete information regarding employees’ productivity is essential for the rationalization of (efficiency-enhancing) tournaments. In this Paper we propose an alternative rationalization of tournaments focusing on a fully informed principal whose objective is to maximize a weighted average of the profitability (productivity) of their team and of the promotion-seeking efforts of their employees. Our first main result clarifies the conditions under which the principal has an incentive to create a tournament that determines the promoted employee. We then examine the effect of the employees' productivity on their probability of promotion and on the extent of the resources wasted in the tournament. In particular, we specify the conditions that ensure that the most productive employee (the natural candidate for promotion) is less likely to be promoted and the conditions under which higher employee's productivity results in increased wasted promotion-seeking efforts.
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References listed on IDEAS
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.:
- Sherwin Rosen, 1985.
"Prizes and Incentives in Elimination Tournaments,"
NBER Working Papers
1668, National Bureau of Economic Research, Inc.
- Gil S. Epstein & Shmuel Nitzan, 2002. "Politics of Randomness," CESifo Working Paper Series 803, CESifo Group Munich.
- 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.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
- Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
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