A Model of Industry Tournament Incentives

Abstract

This paper builds on Rosen (1981) and Hvide (2002) to provide a simple framework that elucidates the nature of incentives in the tournaments among top executives in both the external managerial labor market for the top executive positions in other companies and within the executives’ own firm for the top internal position. In doing so, the model provides a formal foundation for the empirical evidence in Kale Reis, and Venkataswaran (2009), Kini and Williams (2012), and Coles, Li, and Wang (2018, 2017) and is suggestive of the nature of tournament incentives among mutual fund managers (Brown, Harlow, and Starks, 1996).

Keywords: tournament incentives, firm performance, risk, and policy; industry tournament incentives, managerial incentives, managerial labor markets, internal labor markets and promotion

JEL Classification: G31, G32, G34, J31, J33, L25