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Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests

Author

Listed:
  • Stracke, Rudi

    () (University of Munich)

  • Sunde, Uwe

    () (University of Munich)

Abstract

This paper shows that the incentive effects of heterogeneity may be positive rather than negative in dynamic contests with multiple stages. In particular, the well-studied adverse effects of heterogeneity in static interactions are compensated by positive continuation-value and selection effects. Due to these positive dynamic incentive effects of heterogeneity that increase the incentives of relatively more able workers, heterogeneity is unlikely to be as detrimental as commonly perceived for incentives in organizations with multiple hierarchy levels. Heterogeneity of the workforce may even be optimal from the perspective of a firm that provides incentives using a multi-stage promotion contest.

Suggested Citation

  • Stracke, Rudi & Sunde, Uwe, 2014. "Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests," IZA Discussion Papers 8368, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8368
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    References listed on IDEAS

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    1. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    2. Catherine Haeck & Frank Verboven, 2012. "The Internal Economics of a University: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 30(3), pages 591-626.
    3. Christian Ewerhart, 2010. "Rent-seeking contests with independent private values," IEW - Working Papers 490, Institute for Empirical Research in Economics - University of Zurich.
    4. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
    5. Stracke, Rudi, 2013. "Contest design and heterogeneity," Economics Letters, Elsevier, vol. 121(1), pages 4-7.
    6. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
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    Cited by:

    1. Frimmel, Wolfgang & Horvath, Thomas & Schnalzenberger, Mario & Winter-Ebmer, Rudolf, 2015. "Seniority Wages and the Role of Firms in Retirement," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113163, Verein für Socialpolitik / German Economic Association.
    2. Lackner, Mario & Stracke, Rudi & Sunde, Uwe & Winter-Ebmer, Rudolf, 2015. "Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field," IZA Discussion Papers 9564, Institute for the Study of Labor (IZA).
    3. Babington, Michael & Goerg, Sebastian J. & Kitchens, Carl, 2017. "Do Tournaments with Superstars Encourage or Discourage Competition?," IZA Discussion Papers 10755, Institute for the Study of Labor (IZA).
    4. Mario Lackner, 2016. "Teams as Superstars: Effort and Risk Taking in Rank-Order Tournaments for Women and Men," Economics working papers 2016-13, Department of Economics, Johannes Kepler University Linz, Austria.

    More about this item

    Keywords

    incentive provision; multiple-stages; promotion contest; heterogeneity;

    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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