Promotion and Demotion Contests

43 Pages Posted: 28 Mar 2022

See all articles by Jonathan Levy

Jonathan Levy

The University of Sydney

Jingjing Zhang

Royal Melbourne Institute of Technology (RMIT) University

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Abstract

To increase total effort, we design a two-stage lottery contest where heterogeneous agents face the prospect of promotion and the threat of demotion from one stage to the next. We develop two competing theoretical models to generate predictions about behaviour: (i) the standard economic model and (ii) a behavioural model where agents derive non-monetary utility from winning. The experimental results provide strong support for the use of promotion and demotion in contests when ability differences are small, however, they do not provide strong support for the use of promotion and demotion in contests when ability differences are large. Our experimental results are consistent with the predictions made by the behavioural model.

Keywords: Promotion, demotion, heterogeneity, contest design, experiments

Suggested Citation

Levy, Jonathan and Zhang, Jingjing, Promotion and Demotion Contests. Available at SSRN: https://ssrn.com/abstract=4068304 or http://dx.doi.org/10.2139/ssrn.4068304

Jonathan Levy

The University of Sydney ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia

Jingjing Zhang (Contact Author)

Royal Melbourne Institute of Technology (RMIT) University ( email )

Australia

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