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Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests

Author

Listed:
  • Stracke, Rudi

    (University of Munich)

  • Sunde, Uwe

    (University of Munich)

Abstract

This paper shows that the incentive effects of heterogeneity may be positive rather than negative in dynamic contests with multiple stages. In particular, the well-studied adverse effects of heterogeneity in static interactions are compensated by positive continuation-value and selection effects. Due to these positive dynamic incentive effects of heterogeneity that increase the incentives of relatively more able workers, heterogeneity is unlikely to be as detrimental as commonly perceived for incentives in organizations with multiple hierarchy levels. Heterogeneity of the workforce may even be optimal from the perspective of a firm that provides incentives using a multi-stage promotion contest.

Suggested Citation

  • Stracke, Rudi & Sunde, Uwe, 2014. "Dynamic Incentive Effects of Heterogeneity in Multi-Stage Promotion Contests," IZA Discussion Papers 8368, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8368
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    References listed on IDEAS

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    Cited by:

    1. Lackner, Mario & Stracke, Rudi & Sunde, Uwe & Winter-Ebmer, Rudolf, 2015. "Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field," Economics Series 319, Institute for Advanced Studies.
    2. Michael Babington & Sebastian J. Goerg & Carl Kitchens, 2020. "Do Tournaments With Superstars Encourage or Discourage Competition?," Journal of Sports Economics, , vol. 21(1), pages 44-63, January.
    3. Frimmel, Wolfgang & Horvath, Thomas & Schnalzenberger, Mario & Winter-Ebmer, Rudolf, 2018. "Seniority wages and the role of firms in retirement," Journal of Public Economics, Elsevier, vol. 164(C), pages 19-32.
    4. Mario Lackner, 2016. "Teams as Superstars: Effort and Risk Taking in Rank-Order Tournaments for Women and Men," Economics working papers 2016-13, Department of Economics, Johannes Kepler University Linz, Austria.
    5. Bhattacharya, Puja & Rampal, Jeevant, 2019. "Contests within and between groups," Discussion Papers, Research Unit: Market Behavior SP II 2019-206, WZB Berlin Social Science Center.

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    More about this item

    Keywords

    incentive provision; multiple-stages; promotion contest; heterogeneity;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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