Promotions and Incentives: The Case of Multistage Elimination Tournaments

Abstract

Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments * Promotion tournaments play an important role for the provision of incentives in firms. In this paper, we extend research on single-stage rank-order tournaments and analyze behavior in multi-stage elimination tournaments. The main treatment of our laboratory experiment is a two-stage tournament in which equilibrium efforts are the same in both stages. We compare this treatment to a strategically equivalent one-stage tournament and to another two-stage tournament with a more convex wage structure. Confirming previous findings average effort in our one-stage treatment is close to Nash equilibrium. In contrast, subjects in our main treatment provide excess effort in the first stage both with respect to Nash predictions and compared to the equivalent one-stage tournament. The results for the more convex twostage tournament show that excess effort in the first stage is a robust finding and that subjects react only weakly to differences in the wage structure.

Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment

“…1 Despite the theoretical interest in this type of worker prosocial motivation, there is not much empirical evidence on the effectiveness and relative importance of incentives that appeal to such concern compared to traditional financial incentives. 2 This paper reports results from a real effort experiment in which subjects perform remotely an online data entry task, facing different combinations of financial and social incentives. Financial incentives are represented by a standard piece rate, while social incentives take the form of a donation received by a charity of the subject's choice -either lump sum or related to the subject's performance.…”

“…More specific to our labor market focus, Brekke and Nyborg (2008) argue theoretically that CSR can be used by employers as a labor market screening device. 2 There is a substantial business literature that uses surveys to examine the impact of CSR on potential or existing employees. The usual finding is that companies with a high level of CSR are more attractive for job seekers and that CSR is positively associated with employees' commitment to the firm.…”

“…Experiments have been recently used to shed light on a variety of issues as diverse as promotion tournaments (Altmann et al, 2012), the role of incentives for the self-selection of workers (Dohmen and Falk, 2009), and the role of reference points for the provision of effort (Abeler et al, 2011). It is worth highlighting here some unique features of our experimental design.…”

Distributional preferences in probabilistic and share contests

“…1 Evidence from empirical tests of contest theory and behavioral economics in general, however, suggests that people consistently behave as if they were motivated by more general, other-regarding preferences, and the conjecture that social comparisons may influence behavior in contest-like situations has intuitive appeal and shows up in experiments. 2 Internal promotion tournaments or more generally some form of relative-performance incentive scheme to motivate employees within a firm (Lazear and Rosen (1981)) are a good example: In a number of cases, the employees competing with each other work closely together and have a plethora of opportunities to establish social ties and to evaluate their outcome relative to their peers (see for example Loewenstein, Thompson, and Bazerman (1989); Kräkel (2008) ;Chen, Ham, and Lim (2011);Altmann, Falk, and Wibral (2012)). Similarly, contests can also be used to analyze litigation and more generally fights (see Baye, Kovenock, and de Vries (2005) and Corchón (2007)).…”

An Envelope Approach to Tournament Design

“…If " 1 and " 2 are uniformly distributed, then follows a triangular distribution (e.g., Bull et al, 1987;Altmann et al, 2012). The normalized density g(z) = maxf0; minf1 + z; 1 zgg is, however, not strictly bell-shaped, so that Remark 2 does not apply.…”