Incentives in Economic Departments: Testing Tournaments?
Aarhus School of Business Economics Working Paper No. 03-25
31 Pages Posted: 13 Feb 2004
Date Written: 2003
Existing tests of tournament theory have recently been criticized for their failure to distinguish tournaments from other theories that have similar effects like standards and marginal productivity theory (Gibbs, 1994, 1996; Prendergast, 1999). In this paper, we propose a series of empirical tests that allow to make this distinction. We use a dataset of average wages by rank in US economic departments over the period 1977-1997 and link this information to individual production data to test whether wage gaps affect the productivity and cooperative behavior of economists and to control for marginal productivity theory. We find that the wage gap is increasing along the hierarchy, even when controlling for production by rank. Moreover, wages are more sensitive to productivity for higher ranks. We find some evidence that higher wage gaps lead to higher productivity but not that wage gaps depend on the number of contestants nor that they lead to less cooperation. These findings tend to go in favor of the use of standards rather than tournaments in economic departments.
Keywords: incentives, sorting, tournaments, standards, marginal productivity, economic departments
JEL Classification: J0, M5
Suggested Citation: Suggested Citation