Target Setting in Tournaments: Theory and Evidence from China

60 Pages Posted: 21 Mar 2017  

Xing Li

Peking University

Chong Liu

Peking University

Xi Weng

Peking University

Li-An Zhou

Peking University - Guanghua School of Management

Date Written: March 19, 2017

Abstract

Performance targets are widely used to incentivize agents in modern organizations. Motivated by the prevalence of economic targets in all levels of territory administrations in China, this paper proposes a Tullock contest model to study optimal target setting in a multi-layered tournament-based organization. In our model, targets are used by the upper-level official to convey the importance for economic growth and incentivize her subordinates in the tournaments. The key model assumptions are supported by our structural estimation of promotion function. Our model predicts a top-down amplification of economic growth targets along the jurisdiction levels which is consistent with the observed pattern in China. Using both provincial and prefectural level data, we test the model predictions and find consistent evidence.

Keywords: Top-down amplification, bureaucratic incentives, multi-level government, regional competition

JEL Classification: H11, H7, O2, P3

Suggested Citation

Li, Xing and Liu, Chong and Weng, Xi and Zhou, Li-An, Target Setting in Tournaments: Theory and Evidence from China (March 19, 2017). Available at SSRN: https://ssrn.com/abstract=2937195 or http://dx.doi.org/10.2139/ssrn.2937195

Xing Li (Contact Author)

Peking University ( email )

Peking University
Beijing, Beijing 100871
China

Chong Liu

Peking University ( email )

Xi Weng

Peking University ( email )

Beijing, 100871
China

Li-An Zhou

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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