IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions

Listed author(s):
  • DeVaro, Jed

Applying a simultaneous-equations estimation approach that accounts for both worker and firm behavior, I show that six alternative promotion models can be empirically distinguished to a greater extent than previously thought. I show that classic tournaments, market-based tournaments, and performance standards can be sharply distinguished when promotions induce worker effort. I also show that market-based tournaments with effort choices can be sharply distinguished from those with human capital investments. A key insight is that an empirical test can be based on the “opposing responses” property whereby workers and firms adjust their choice variables in opposite directions when the stochastic component of worker performance changes. Finally, I propose a new approach – also requiring simultaneous equations – for empirically distinguishing between classic tournaments and market-based tournaments with human capital investments, showing that the two models differ in their predictions regarding the average wage between job levels.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/35175/1/MPRA_paper_35175.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35175.

as
in new window

Length:
Date of creation: 2011
Handle: RePEc:pra:mprapa:35175
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Oyer, Paul, 2001. "Why Do Firms Use Incentives That Have No Incentive Effects?," Research Papers 1686, Stanford University, Graduate School of Business.
  2. Daniel A. Ackerberg & Maristella Botticini, 1999. "Endogenous Matching and the Empirical Determinants of Contract Form," Boston University - Institute for Economic Development 92, Boston University, Institute for Economic Development.
  3. Hideo Owan, 2004. "Promotion, Turnover, Earnings, and Firm-Sponsored Training," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 955-978, October.
  4. Meyer, Margaret A, 1992. "Biased Contests and Moral Hazard: Implications for Career Profiles," CEPR Discussion Papers 637, C.E.P.R. Discussion Papers.
  5. Jed DeVaro & Hodaka Morita, 2013. "Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 227-269.
  6. Margaret A. Meyer, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 15-41.
  7. Theofanis Tsoulouhas & Charles R. Knoeber & Anup Agrawal, "undated". "Contests to Become CEO: Incentives, Selection and Handicaps," Working Paper Series 002, North Carolina State University, Department of Economics, revised Jul 2004.
  8. Lorne Carmichael, 1981. "Firm-Specific Human Capital and Promotion Ladders," Working Papers 452, Queen's University, Department of Economics.
  9. Fairburn, J.A. & Malcomson, J.M., 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 9926, University of Oxford, Department of Economics.
  10. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
  11. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
  12. Oyer, Paul & Schaefer, Scott, 2004. "Why Do Some Firms Give Stock Options To All Employees?: An Empirical Examination of Alternative Theories," Research Papers 1772r, Stanford University, Graduate School of Business.
  13. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
  14. Michael Waldman, 1984. "Worker Allocation, Hierarchies and the Wage Distribution," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 95-109.
  15. repec:sae:ilrrev:v:43:y:1990:i:3:p:74-88 is not listed on IDEAS
  16. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
  17. 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 155-179, April.
  18. Serfes, Konstantinos, 2005. "Risk sharing vs. incentives: Contract design under two-sided heterogeneity," Economics Letters, Elsevier, vol. 88(3), pages 343-349, September.
  19. Erin Anderson & David C. Schmittlein, 1984. "Integration of the Sales Force: An Empirical Examination," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 385-395, Autumn.
  20. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
  21. Ronald G. Ehrenberg & Michael L. Bognanno, 1988. "Do Tournaments Have Incentive Effects?," NBER Working Papers 2638, National Bureau of Economic Research, Inc.
  22. Bentley MacLeod & James M. Malcomson, 1985. "Reputation and Hierarchy in Dynamic Models of Employment," Working Papers 628, Queen's University, Department of Economics.
  23. 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 262-280, April.
  24. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
  25. Leffler, Keith B & Rucker, Randal R, 1991. "Transactions Costs and the Efficient Organization of Production: A Study of Timber-Harvesting Contracts," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1060-1087, October.
  26. Meyer, Margaret & Milgrom, Paul & Roberts, John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 9-35, Spring.
  27. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up-or-out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325.
  28. Michael Waldman, 1989. "Up-or-Out Contracts: A Signaling Perspective," UCLA Economics Working Papers 556, UCLA Department of Economics.
  29. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages 640-671, November.
  30. Scott Schaefer, 1998. "Influence Costs, Structural Inertia, and Organizational Change," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 237-263, 06.
  31. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  32. Jed Devaro & Fidan Ana Kurtulus, 2011. "An Empirical Analysis of Risk, Incentives and The Delegation of Worker Authority," UMASS Amherst Economics Working Papers 2011-13, University of Massachusetts Amherst, Department of Economics.
  33. Zabojnik, Jan, 1996. "Pay-performance sensitivity and production uncertainty," Economics Letters, Elsevier, vol. 53(3), pages 291-296, December.
  34. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(3), pages 453-476.
  35. Rao, C H Hanumantha, 1971. "Uncertainty, Entrepreneurship, and Sharecropping in India," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 578-595, May-June.
  36. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  37. DeVaro, Jed & Waldman, Michael, 2006. "The signaling role of promotions: Further theory and empirical evidence," MPRA Paper 1550, University Library of Munich, Germany.
  38. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
  39. Rajesh Aggarwal & Andrew A. Samwick, 1998. "The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation," NBER Working Papers 6634, National Bureau of Economic Research, Inc.
  40. Jed Devaro & Dana Brookshire, 2007. "Promotions and Incentives in Nonprofit and for-Profit Organizations," ILR Review, Cornell University, ILR School, vol. 60(3), pages 311-339, April.
  41. Nicolai J. Foss & Keld Laursen, 2002. "Performance Pay, Delegation, and Multitasking under Uncertainty and Innovativeness An Empirical Investigation," DRUID Working Papers 02-14, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  42. Raith, Michael, 2004. "Specific Knowledge and Performance Measurement," CEPR Discussion Papers 4262, C.E.P.R. Discussion Papers.
  43. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-570, October.
  44. Edward P. Lazear & Paul Oyer, 2007. "Personnel Economics," NBER Working Papers 13480, National Bureau of Economic Research, Inc.
  45. Gibbs, Michael, 1995. "Incentive compensation in a corporate hierarchy," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 247-277, April.
  46. Garvey, Gerald T & Swan, Peter L, 1992. "Managerial Objectives, Capital Structure, and the Provision of Worker Incentives," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 357-379, October.
  47. 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.
  48. Limor Golan, 2005. "Counteroffers and Efficiency in Labor Markets with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 373-393, April.
  49. Allen, Douglas & Lueck, Dean, 1992. "Contract Choice in Modern Agriculture: Cash Rent versus Cropshare," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 397-426, October.
  50. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer.
  51. Rick Audas & Tim Barmby & John Treble, 2004. "Luck, Effort, and Reward in an Organizational Hierarchy," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 379-396, April.
  52. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
  53. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
  54. Michael Waldman, 2012. "Theory and Evidence in Internal Labor Markets," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
  55. Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
  56. Taye Mengistae & Lixin Colin Xu, 2004. "Agency Theory and Executive Compensation: The Case of Chinese State-Owned Enterprises," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 615-638, July.
  57. Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
  58. Norton, Seth W, 1988. "An Empirical Look at Franchising as an Organizational Form," The Journal of Business, University of Chicago Press, vol. 61(2), pages 197-218, April.
  59. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-628, October.
  60. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
  61. Jan Zábojník & Dan Bernhardt, 2001. "Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 693-716.
  62. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  63. 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.
  64. 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.
  65. Michael Waldman, 2003. "Ex Ante versus Ex Post Optimal Promotion Rules: The Case of Internal Promotion," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 27-41, January.
  66. Kawasaki, Seiichi & McMillan, John, 1987. "The design of contracts: Evidence from Japanese subcontracting," Journal of the Japanese and International Economies, Elsevier, vol. 1(3), pages 327-349, September.
  67. Matthias Kräkel, 2005. "Helping And Sabotaging In Tournaments," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 211-228.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35175. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.