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The optimality of heterogeneous tournaments

  • Gürtler, Marc
  • Gürtler, Oliver

We investigate the effect of employee heterogeneity on the incentive to put forth effort in a market-based tournament. Employers use the tournament's outcome to estimate employees' abilities and accordingly condition their wage offers. Employees put forth effort, because by doing so they increase the probability of outperforming the rival, thereby increasing their ability assessment and thus the wage offer. We demonstrate that the tournament outcome provides more information about employees' abilities in case they are heterogeneous. Thus, employees get a higher incentive to affect the tournament outcome, and employers find it optimal to hire heterogeneous contestants.

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Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number IF42V1.

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Date of creation: 2013
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Handle: RePEc:zbw:tbsifw:if42v1
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  1. Oliver Gürtler & Johannes Münster & Petra Nieken, 2013. "Information Policy in Tournaments with Sabotage," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(3), pages 932-966, 07.
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  8. Jed DeVaro, 2005. "Internal Promotion Competitions in Firms," Labor and Demography 0508005, EconWPA.
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  11. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
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  13. Bognanno, Michael L. & Melero Martín, Eduardo, 2012. "Promotion Signals, Age and Education," IZA Discussion Papers 6431, Institute for the Study of Labor (IZA).
  14. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
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  19. repec:rje:randje:v:37:y:2006:3:p:521-542 is not listed on IDEAS
  20. Jennifer Brown, 2011. "Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars," Journal of Political Economy, University of Chicago Press, vol. 119(5), pages 982 - 1013.
  21. Heikki Rantakari, 2012. "Employee Initiative and Managerial Control," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 171-211, August.
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  25. 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.
  26. Gürtler, Oliver & Kräkel, Matthias, 2010. "Optimal tournament contracts for heterogeneous workers," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 180-191, August.
  27. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
  28. Kong-Pin Chen, 2003. "Sabotage in Promotion Tournaments," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 119-140, April.
  29. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
  30. Johannes Münster, 2007. "Selection Tournaments, Sabotage, and Participation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 943-970, December.
  31. Grund, Christian & Sliwka, Dirk, 2010. "Evidence on performance pay and risk aversion," Economics Letters, Elsevier, vol. 106(1), pages 8-11, January.
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