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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).

Suggested Citation

  • 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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    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.
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    3. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    4. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January.
    5. 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.
    6. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 147-149, January.
    7. Matthew Gentzkow & Jesse M. Shapiro, 2006. "Media Bias and Reputation," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 280-316, April.
    8. Drago, Robert & Garvey, Gerald T, 1998. "Incentives for Helping on the Job: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 1-25, January.
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    10. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    11. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
    12. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-1134, December.
    13. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
    14. Jeong-Yoo Kim & Keunkwan Ryu, 2003. "Yes-Men and No-Men: Does Defiance Signal Talent?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(3), pages 468-468, September.
    15. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Tournaments; Information Aggregation; Conformity;

    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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