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Promotion and demotion contests

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  • Levy, Jonathan
  • Zhang, Jingjing

Abstract

With a fixed prize budget, to increase total effort, we design a two-stage lottery contest where heterogeneous agents face the prospect of promotion and the threat of demotion from one stage to the next. We develop two competing theoretical models to generate predictions about behavior: (i) the standard economic model and (ii) a behavioral model where agents derive non-monetary utility from winning. The experimental results provide strong support for the use of promotion and demotion in contests when abilities are homogeneous, however, they do not provide strong support for the use of promotion and demotion in contests when ability differences are large. Our experimental results are consistent with the predictions made by the behavioral model.

Suggested Citation

  • Levy, Jonathan & Zhang, Jingjing, 2024. "Promotion and demotion contests," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 124-151.
    • Handle: RePEc:eee:jeborg:v:219:y:2024:i:c:p:124-151
    DOI: 10.1016/j.jebo.2024.01.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Promotion; Demotion; Heterogeneity; Contest design; Experiments;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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