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The optimality of heterogeneous tournaments

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  • Gürtler, Marc
  • Gürtler, Oliver

Abstract

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.

Suggested Citation

  • Gürtler, Marc & Gürtler, Oliver, 2013. "The optimality of heterogeneous tournaments," Working Papers IF42V1, Technische Universität Braunschweig, Institute of Finance.
  • Handle: RePEc:zbw:tbsifw:if42v1
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    References listed on IDEAS

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    More about this item

    Keywords

    tournament; competitive labor market; heterogeneity; learning;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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