Tournaments: There is More than Meets the Eye

21 Pages Posted: 2 Sep 2004

See all articles by Gil S. Epstein

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Shmuel Nitzan

Bar-Ilan University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2004

Abstract

By the well established tournament literature, incomplete information regarding the employees' productivity is essential for the rationalization of (efficiency-enhancing) tournaments. In this paper we propose an alternative rationalization of tournaments focusing on a fully informed principal whose objective is to maximize a weighted average of the profitability (productivity) of his team and of the promotion-seeking efforts of his employees. Our first main result clarifies the conditions under which the principal has an incentive to create a tournament that determines the promoted employee. We then examine the effect of the employees' productivity on their probability of promotion and on the extent of the resources wasted in the tournament. In particular, we specify the conditions that ensure that the most productive employee (the natural candidate for promotion) is less likely to be promoted and the conditions under which higher employee's productivity results in increased wasted promotion-seeking efforts.

Keywords: tournaments, promotion

JEL Classification: D2, D71, J2

Suggested Citation

Epstein, Gil S. and Nitzan, Shmuel, Tournaments: There is More than Meets the Eye (February 2004). IZA Discussion Paper No. 1023. Available at SSRN: https://ssrn.com/abstract=508563

Gil S. Epstein (Contact Author)

Bar-Ilan University - Department of Economics ( email )

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HOME PAGE: http://faculty.biu.ac.il/~epsteig/

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Shmuel Nitzan

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
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+972.3.535.3180 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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