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Worker compensation schemes and product market competition

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  • Stadler, Manfred

Abstract

We analyze product market competition between firm owners where the risk-neutral workers decide on their efforts and, thereby, on the output levels. Various worker compensation schemes are compared: a piece-rate compensation scheme as a benchmark when workers' output performance is verifiable, and a contest-based as well as a tournament-based compensation scheme when it is only verifiable who the best performing worker is. According to optimal designs, all the considered compensation contracts lead to an equal market outcome. Therefore, it depends decisively on the relative costs of organizing a monitoring device, a contest, or a tournament whether the one or the other compensation scheme should be implemented.

Suggested Citation

  • Stadler, Manfred, 2020. "Worker compensation schemes and product market competition," University of Tübingen Working Papers in Business and Economics 128, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:128
    DOI: 10.15496/publikation-38665
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    References listed on IDEAS

    as
    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. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    3. Pull, Kerstin & Stadler, Manfred, 2015. "Contests vs. piece rates in product market competition," University of Tübingen Working Papers in Business and Economics 85, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    4. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
    5. Stadler Manfred & Pull Kerstin, 2015. "Piece Rates vs. Contests in Product Market Competition," Review of Economics, De Gruyter, vol. 66(3), pages 273-287, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    worker compensation schemes; piece rates; contests; tournaments; product market competition;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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