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Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments

  • Altmann, Steffen

    ()

    (University of Copenhagen)

  • Falk, Armin

    ()

    (University of Bonn)

  • Wibral, Matthias

    ()

    (University of Bonn)

Promotion tournaments play an important role for the provision of incentives in firms. In this paper, we extend research on single-stage rank-order tournaments and analyze behavior in multi-stage elimination tournaments. The main treatment of our laboratory experiment is a two-stage tournament in which equilibrium efforts are the same in both stages. We compare this treatment to a strategically equivalent one-stage tournament and to another two-stage tournament with a more convex wage structure. Confirming previous findings average effort in our one-stage treatment is close to Nash equilibrium. In contrast, subjects in our main treatment provide excess effort in the first stage both with respect to Nash predictions and compared to the equivalent one-stage tournament. The results for the more convex two-stage tournament show that excess effort in the first stage is a robust finding and that subjects react only weakly to differences in the wage structure.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3835.

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Length: 26 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3835
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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 841-64, October.
  2. Tor Eriksson & Sabrina Teyssier & Marie-Claire Villeval, 2006. "Self-Selection and the Efficiency of Tournaments," Working Papers 0603, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Ronald G. Ehrenberg & Michael L. Bognanno, 1988. "Do Tournaments Have Incentive Effects?," NBER Working Papers 2638, National Bureau of Economic Research, Inc.
  4. Christian Belzil & Michael Bognanno, 2006. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," Post-Print halshs-00142838, HAL.
  5. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  6. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects and the Earnings Dynamics of American executives," Post-Print halshs-00354270, HAL.
  7. Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 155-79, April.
  8. 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.
  9. Dohmen, Thomas & Falk, Armin, 2006. "Performance Pay and Multi-dimensional Sorting: Productivity, Preferences and Gender," IZA Discussion Papers 2001, Institute for the Study of Labor (IZA).
  10. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  11. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  12. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  13. Benny Moldovanu & Aner Sela & Xianwen Shi, 2006. "Contests For Status," Working Papers 0604, Ben-Gurion University of the Negev, Department of Economics.
  14. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
  15. repec:hal:journl:hal-00363063 is not listed on IDEAS
  16. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  17. Harbring, Christine & Irlenbusch, Bernd, 2008. "How many winners are good to have?: On tournaments with sabotage," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 682-702, March.
  18. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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