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Information Management in Rank-Order Tournaments

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Author Info
Ingmar Nyman () (Department of Economics, Hunter College)
Jason G. Cummins () (Brevan Howard Asset Management)

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Abstract

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition for promotion can turn employees into "yes men" who make investment decisions that excessively agree with their supervisor's preconceived notions. Employees become "yes men" when their supervisor's prior opinion is strong and the parties receive little subsequent information. In response to this inefficiency, the firm may intensify the tournament's incentives (e.g., increase the wage raise from promotion), increase the correlation of employees' information (e.g., use tournaments for employees handling similar tasks), or reduce the importance of any individual supervisor's prior opinion (e.g., evaluate employees using a committee).

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File URL: http://arrow.hunter.cuny.edu/research/papers/HunterEconWP413.pdf
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Publisher Info
Paper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 413.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 41 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:htr:hcecon:413

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Related research
Keywords: Tournaments; Information Aggregation; Conformity;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions

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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.:
  1. Adam Brandenburger & Ben Polak, 1996. "When Managers Cover Their Posteriors: Making the Decisions the Market Wants to See," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 523-541, Autumn. [Downloadable!] (restricted)
  2. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Prendergast, Canice, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 523-34, May. [Downloadable!] (restricted)
  4. Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Heidhues, Paul & Lagerlof, Johan, 2003. "Hiding information in electoral competition," Games and Economic Behavior, Elsevier, vol. 42(1), pages 48-74, January. [Downloadable!] (restricted)
    Other versions:
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
  8. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December. [Downloadable!] (restricted)
  9. Dye, Ronald A, 1984. "The Trouble with Tournaments," Economic Inquiry, Oxford University Press, vol. 22(1), pages 147-49, January.
  10. Jason G. Cummins & Ingmar Nyman, 2005. "The Dark Side of Competitive Pressure," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 361-397, Summer.
    Other versions:
  11. 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.
    Other versions:
  12. James Malcomson & James Fairburn, 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 026, University of Oxford, Department of Economics.
    Other versions:
  13. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June. [Downloadable!] (restricted)
  14. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  15. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring. [Downloadable!] (restricted)
    Other versions:
  16. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-10-15.

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