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Incentives vs. Selection in Promotion Tournaments: Can a Designer Kill Two Birds with One Stone?

Author

Listed:
  • Höchtl, Wolfgang

    (University of Innsbruck)

  • Kerschbamer, Rudolf

    (University of Innsbruck)

  • Stracke, Rudi

    (University of Munich)

  • Sunde, Uwe

    (University of Munich)

Abstract

This paper studies the performance of promotion tournaments with heterogeneous participants in two dimensions: incentive provision and selection. Our theoretical analysis reveals a trade-off for the tournament designer between the two goals: While total effort is maximized if less heterogeneous participants compete against each other early in the tournament, letting more heterogeneous participants compete early increases the accuracy in selection. Experimental evidence supports our theoretical findings, indicating that the optimal design of promotion tournaments crucially depends on the objectives of the tournament designer. These findings have important implications for the optimal design of promotion tournaments in organizations.

Suggested Citation

  • Höchtl, Wolfgang & Kerschbamer, Rudolf & Stracke, Rudi & Sunde, Uwe, 2011. "Incentives vs. Selection in Promotion Tournaments: Can a Designer Kill Two Birds with One Stone?," IZA Discussion Papers 5755, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5755
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    References listed on IDEAS

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    1. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
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    Cited by:

    1. Shakun D. Mago & Roman M. Sheremeta, 2019. "New Hampshire Effect: behavior in sequential and simultaneous multi-battle contests," Experimental Economics, Springer;Economic Science Association, vol. 22(2), pages 325-349, June.
    2. Hörtnagl-Pozzo, Tanja & Kerschbamer, Rudolf & Oexl, Regine & Stracke, Rudi & Sunde, Uwe, 2023. "Heterogeneity in rent-seeking contests with multiple stages: Theory and experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 105(C).
    3. Matthias Kräkel, 2014. "Optimal seedings in elimination tournaments revisited," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(1), pages 77-91, April.
    4. Zeynep B. Irfanoglu & Shakun D. Mago & Roman M. Sheremeta, 2014. "The New Hampshire Effect: Behavior in Sequential and Simultaneous Election Contests," Working Papers 14-15, Chapman University, Economic Science Institute.
    5. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    6. Lindner, Florian & Dutcher, E. Glenn & Balafoutas, Loukas & Ryvkin, Dmitry & Sutter, Matthias, 2013. "Strive to be first and avoid being last: An experiment on relative performance incentives," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79885, Verein für Socialpolitik / German Economic Association.
    7. Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2014. "Dynamic incentive effects of relative performance pay: A field experiment," Labour Economics, Elsevier, vol. 28(C), pages 1-13.
    8. Deck, Cary & Sheremeta, Roman M., 2019. "The tug-of-war in the laboratory," European Journal of Political Economy, Elsevier, vol. 60(C).
    9. Stracke, Rudi, 2012. "Orchestrating Contests with Heterogeneous Participants," Economics Working Paper Series 1218, University of St. Gallen, School of Economics and Political Science.
    10. Dutcher, E. Glenn & Balafoutas, Loukas & Lindner, Florian & Ryvkin, Dmitry & Sutter, Matthias, 2015. "Strive to be first or avoid being last: An experiment on relative performance incentives," Games and Economic Behavior, Elsevier, vol. 94(C), pages 39-56.
    11. Marc Gürtler & Oliver Gürtler, 2015. "The Optimality of Heterogeneous Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 1007-1042.
    12. Stracke, Rudi, 2013. "Contest design and heterogeneity," Economics Letters, Elsevier, vol. 121(1), pages 4-7.

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    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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