Incentives in Economic Departments: Testing Tournaments?
Existing tests of tournament theory have recently been criticized for their failure to distinguish tournaments from other theories that have similar effects like standards and marginal productivity theory (Gibbs, 1994, 1996; Prendergast, 1999). In this paper, we propose a series of empirical tests that allow to make this distinction. We use a dataset of average wages by rank in US economic departments over the period 1977-1997 and link this information to individual production data to test whether wage gaps aﬀect the productivity and cooperative behavior of economists and to control for marginal productivity theory. We find that the wage gap is increasing along the hierarchy, even when controlling for production by rank. Moreover, wages are more sensitive to productivity for higher ranks. We find some evidence that higher wage gaps lead to higher productivity but not that wage gaps depend on the number of contestants nor that they lead to less cooperation.
|Date of creation:||26 May 2003|
|Date of revision:|
|Contact details of provider:|| Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark|
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
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- Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
- Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
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"Rank-Order Tournaments as Optimum Labor Contracts,"
NBER Working Papers
0401, National Bureau of Economic Research, Inc.
- Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
- Rosen, Sherwin, 1986.
"Prizes and Incentives in Elimination Tournaments,"
American Economic Review,
American Economic Association, vol. 76(4), pages 701-15, September.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
- Ronald G. Ehrenberg & Michael L. Bognanno, 1988.
"Do Tournaments Have Incentive Effects?,"
NBER Working Papers
2638, National Bureau of Economic Research, Inc.
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