Relative Performance Pay in the Shadow of Crisis
We analyze whether incentives from relative performance pay are reduced or enhanced if a department is possibly terminated due to a crisis. Our benchmark model shows that incentives decrease in a severe crisis, but are boosted given a minor crisis since efforts are strategic complements in the former case but strategic substitutes in the latter one. We tested our predictions in a laboratory experiment. The results confirm the effort ranking but show that in a severe crisis individuals deviate from equilibrium significantly stronger than in other situations. This behavior contradicts the benchmark model and leads to a five times higher survival probability of the department. We develop a new theoretical approach that may explain playersâ€™ behavior.
|Date of creation:||2013|
|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.:
- Nicholas Barberis & Ming Huang & Tano Santos, 2001.
"Prospect Theory And Asset Prices,"
The Quarterly Journal of Economics,
MIT Press, vol. 116(1), pages 1-53, February.
- Nicholas Barberis & Ming Huang & Tano Santos, . "Prospect Theory and Asset Prices," CRSP working papers 494, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Nicholas Barberis & Ming Huang & Tano Santos, 1999. "Prospect Theory and Asset Prices," NBER Working Papers 7220, National Bureau of Economic Research, Inc.
- Nicholas BARBERIS & Ming HUANG & Tano SANTOS, 2000. "Prospect Theory and Asset Prices," FAME Research Paper Series rp16, International Center for Financial Asset Management and Engineering.
- Hans K. Hvide, 2000.
"Tournament Rewards and Risk Taking,"
Econometric Society World Congress 2000 Contributed Papers
0163, Econometric Society.
- Gill, David & Stone, Rebecca, 2010.
"Fairness and desert in tournaments,"
Games and Economic Behavior,
Elsevier, vol. 69(2), pages 346-364, July.
- David Gill & Rebecca Stone, 2006. "Fairness and Desert in Tournaments," Economics Series Working Papers 279, University of Oxford, Department of Economics.
- Gill, David & Stone, Rebecca, 2010. "Fairness and Desert in Tournaments," MPRA Paper 21322, University Library of Munich, Germany.
- Gill, David & Stone, Rebecca, 2009. "Fairness and desert in tournaments," Discussion Paper Series In Economics And Econometrics 0903, Economics Division, School of Social Sciences, University of Southampton.
- Gürtler, Oliver, 2011. "The first-order approach in rank-order tournaments," Economics Letters, Elsevier, vol. 111(3), pages 185-187, June.
- David De Meza & David C Webb, 2006.
"Incentive Design under Loss Aversion,"
FMG Discussion Papers
dp571, Financial Markets Group.
- Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
- Anja Schöttner, 2008.
"Fixed-prize tournaments versus first-price auctions in innovation contests,"
Springer, vol. 35(1), pages 57-71, April.
- Anja Schöttner, 2005. "Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests," SFB 649 Discussion Papers SFB649DP2005-041, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
- Botond Koszegi & Matthew Rabin, 2006.
"Reference-Dependent Risk Attitudes,"
122247000000001267, UCLA Department of Economics.
- Dragon, Robert & Garvey, Gerald T. & Turnbull, Geoffrey K., 1996. "A collective tournament," Economics Letters, Elsevier, vol. 50(2), pages 223-227, February.
- Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:425. 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: (Alexandra Frank)
If references are entirely missing, you can add them using this form.