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Tournaments: There Is More Than Meets the Eye

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  • Epstein, Gil S.

    (Bar-Ilan University)

  • Nitzan, Shmuel

    (Bar-Ilan University)

Abstract

By the well established tournament literature, incomplete information regarding the employees’ productivity is essential for the rationalization of (efficiency-enhancing) tournaments. In this paper we propose an alternative rationalization of tournaments focusing on a fully informed principal whose objective is to maximize a weighted average of the profitability (productivity) of his team and of the promotion-seeking efforts of his employees. Our first main result clarifies the conditions under which the principal has an incentive to create a tournament that determines the promoted employee. We then examine the effect of the employees' productivity on their probability of promotion and on the extent of the resources wasted in the tournament. In particular, we specify the conditions that ensure that the most productive employee (the natural candidate for promotion) is less likely to be promoted and the conditions under which higher employee's productivity results in increased wasted promotion-seeking efforts.

Suggested Citation

  • Epstein, Gil S. & Nitzan, Shmuel, 2004. "Tournaments: There Is More Than Meets the Eye," IZA Discussion Papers 1023, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1023
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Gil Epstein & Shmuel Nitzan, 2006. "The Politics of Randomness," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 27(2), pages 423-433, October.
    3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    4. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
    5. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
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    More about this item

    Keywords

    tournaments; promotion;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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