Optimal Tournament Contracts for Heterogeneous Workers
We analyze the optimal design of rank-order tournaments with heterogeneous workers. Iftournament prizes do not differ between the workers(uniform prizes), as in the previous tournament literature, the outcome will be ineffcient. In the case of limited liability, the employer may benefit from implementing more than first-best effort. We show that the employer can use individual prizes that satisfy a self-commitment condition and induce effcient incentives at the same time, thus solving a fundamental dilemma in tournament theory. Individual prizes exhibit two major advantages - they allow the extraction of worker rents and the adjustment of individual incentives, which will be important for the employer if he cannot rely on handicaps.
|Date of creation:||May 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
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.:
- Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
- Macleod, W.B. & Kanemoto, Y., 1990.
"Firm Reputation And Self-Enforcing Labour Contracts,"
Cahiers de recherche
9026, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Kanemoto, Yoshitsugu & Bentley MacLeod, W., 1992. "Firm reputation and self-enforcing labor contracts," Journal of the Japanese and International Economies, Elsevier, vol. 6(2), pages 144-162, June.
- Macleod, W.B. & Kanemoto, Y., 1990. "Firm Reputation and Self-Enforcing Labour Contracts," Cahiers de recherche 9026, Universite de Montreal, Departement de sciences economiques.
- Yoshitsugu Kanemoto & W. Bentley MacLeod, 1988. "The Theory of Contracts and Labor Practices in Japan and the United States," Working Papers 708, Queen's University, Department of Economics.
- 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.
- 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.
- Hans K. Hvide, 2000.
"Tournament Rewards and Risk Taking,"
Econometric Society World Congress 2000 Contributed Papers
0163, Econometric Society.
- Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 867-81, August.
- Dohmen, Thomas & Kriechel, Ben & Pfann, Gerard A., 2003.
"Monkey Bars and Ladders: The Importance of Lateral and Vertical Job Mobility in Internal Labor Market Careers,"
IZA Discussion Papers
867, Institute for the Study of Labor (IZA).
- Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer, vol. 17(2), pages 193-228, 06.
- Madhav V. Rajan & Stefan Reichelstein, 2006. "Subjective Performance Indicators and Discretionary Bonus Pools," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 585-618, 06.
- Christine Harbring & Gabriele K. Lünser, 2008. "On the Competition of Asymmetric Agents," German Economic Review, Verein für Socialpolitik, vol. 9, pages 373-395, 08.
- Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
- 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.
- Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
- Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
- Dragon, Robert & Garvey, Gerald T. & Turnbull, Geoffrey K., 1996. "A collective tournament," Economics Letters, Elsevier, vol. 50(2), pages 223-227, February.
- 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.
- Lynch, James G., 2005. "The effort effects of prizes in the second half of tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 57(1), pages 115-129, May.
- 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.
- 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.
- Hoffler, Felix & Sliwka, Dirk, 2003. "Do new brooms sweep clean? When and why dismissing a manager increases the subordinates' performance," European Economic Review, Elsevier, vol. 47(5), pages 877-890, October.
- 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.
- Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:234. 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: (Tamilla Benkelberg)
If references are entirely missing, you can add them using this form.