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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. Tor Eriksson & Sabrina Teyssier & Marie Claire Villeval, 2009. "Self-selection and the Efficiency of Tournaments," Post-Print halshs-00451600, HAL.
  2. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
  3. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  4. Dohmen, Thomas & Falk, Armin, 2011. "Performance Pay and Multidimensional Sorting - Productivity, Preferences and Gender," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 360, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. 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.
  6. Benny Moldovanu & Aner Sela & Xianwen Shi, 2006. "Contests For Status," Working Papers 0604, Ben-Gurion University of the Negev, Department of Economics.
  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. Harbring, Christine & Irlenbusch, Bernd, 2003. "An experimental study on tournament design," Labour Economics, Elsevier, vol. 10(4), pages 443-464, August.
  9. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects, and the Earnings Dynamics of American Executives," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 287-310, 04.
  10. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-24, December.
  11. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
  12. Christian Belzil & Michael Bognanno, 2006. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," Post-Print halshs-00142838, HAL.
  13. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects and the Earnings Dynamics of American executives," Post-Print halshs-00354270, HAL.
  14. 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.
  15. 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.
  16. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  17. 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.
  18. 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.
  19. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
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