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Information Management in Rank-Order Tournaments

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Abstract

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition for promotion can turn employees into "yes men" who make investment decisions that excessively agree with their supervisor's preconceived notions. Employees become "yes men" when their supervisor's prior opinion is strong and the parties receive little subsequent information. In response to this inefficiency, the firm may intensify the tournament's incentives (e.g., increase the wage raise from promotion), increase the correlation of employees' information (e.g., use tournaments for employees handling similar tasks), or reduce the importance of any individual supervisor's prior opinion (e.g., evaluate employees using a committee).

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  • Ingmar Nyman & Jason G. Cummins, 2005. "Information Management in Rank-Order Tournaments," Economics Working Paper Archive at Hunter College 413, Hunter College Department of Economics.
    • Handle: RePEc:htr:hcecon:413
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    File URL: http://econ.hunter.cuny.edu/wp-content/uploads/sites/6/RePEc/papers/HunterEconWP413.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Tournaments; Information Aggregation; Conformity;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • 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

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