compensation and span of control in hierarchical organizations this article presents evidence on the relationship between compensation ratios and spans of control within hierarchical organizations we find that compensation ratios are lower than span of control at any position within the hierarchy which is consistent with an elasticity of compensation to a number of subordinates lower than one managers human capital endowments determine a significant part of the salary differences throughout hierarchical levels as predicted by models of talent allocation in hierarchies differences in the size of firms should be attributed more to differences in their number of hierarchical levels than to variations in the span of control

the optimal allocation of prizes in tournaments of heterogeneous agents tournaments are widely used in organizations explicitly or implicitly to reward the best performing employees for example by promotion or bonuses and or to penalize the worst performing employees for example by demotion withholding bonuses or unfavorable job assignments these incentive schemes can be interpreted as various prize allocations based on the employees relative performance while the optimal prize allocation in tournaments of symmetric agents is relatively well understood little is known about the impact of the allocation of prizes on the effectiveness of tournament incentive schemes for heterogeneous agents we show that while multiple prize allocation rules are equivalent when agents are symmetric in their ability the equivalence is broken in the presence of heterogeneity under a wide range of conditions loser prize tournaments that is tournaments that award a low prize to relatively few bottom performers are optimal for the firm the reason is that low ability agents are discouraged less in such tournaments as compared to winner prize tournaments awarding a high prize to few top performers and hence can be compensated less to meet their participation constraints jel m52 j33 j24

external market condition and tournaments theory and evidence abstract this paper adds in a new assumption product price into the tournament model and shows the convexity of pay structure should become stronger when the produce price increases empirical results from a taiwanese textile company are consistent with the implication

gasoline price volatility and the elasticity of demand for gasoline abstract we examine how gasoline price volatility impacts consumers price elasticity of demand for gasoline results show that volatility in prices decreases consumer demand for gasoline in the intermediate run we also find that consumers appear to be less elastic in response to changes in gasoline price when gasoline price volatility is medium or high compared to when it is low moreover we find that when we control for variance in our econometric model gasoline price elasticity of demand is lower in magnitude in the long run

the efficiency of equity in organizational decision processes it is now widely accepted that rent seeking anne krueger 1974 or directly unproductive profit seeking jagdish bhagwati 1982 may cause inefficiencies in the context of public sector decisions the possibility that government decisions for example about taxes quotas franchises or standards may create or redistribute rents induces private parties to spend valuable resources to influence that distribution even when such expenditures carry no social benefit moreover the social cost of rent seeking can exceed the value of the resources spent trying to gain and protect rents for example because the fear of losing wealth through redistribution reduces the incentives for wealth creation treating rent seeking activities as characteristic of public sector decision processes ignores the fact that similar phenomena are to be found in firms unions and other private sector organizations our recent work milgrom 1988 our 1988 1990 papers attempts to identify the advantages of decision processes private or public that permit rent seeking and to incorporate these into a cost benefit analysis of optimal decision processes our work begins with an analysis of why rents and quasi rents arise in organizations and of the forms that the rent seeking they engender may take some measures to insulate the decision process from rent seeking such as limits on the provision of information by interested parties or restrictions on the range of options considered may degrade the quality of decisions especially by blocking the flow of valuable information optimal decision processes balance the costs of rent seeking against the value of information obtained several aspects of the rules affect the opportunities that members have to spend resources trying to alter the distribution of rents to ascertain the possibilities for rent seeking the analyst must ask questions like can the parties propose new initiatives at any time can they give volumes of testimony in a form of their own choosing can they appeal adverse decisions are decision makers obliged to respond to the parties initiatives is the range of actions that they can take in response relatively broad rather than being tightly constrained by property rights or other formal rules more affirmative answers to these questions lead to more opportunities or greater incentives for costly rent seeking as a kind of shorthand we call decision processes that have more of these elements more open processes the very elements that make a process open to rent seeking may also add flexibility and responsiveness helping to ensure that important ideas and proposals are fully considered from this perspective the benefits of openness can in principle be measured by a value of information calculation in the usual manner of statistical decision theory weighing the costs and benefits it follows that a more open process is more desirable when the rents available for redistribution are low and the value of the information that might be acquired is high conversely when the potential for redistribution is high and the value of information is low the optimal decision process is less open this kind of reasoning helps to illuminate the variations in the decision processes that are found in many organizations we have discussed a number of examples in our earlier work including the characteristics of personnel departments the contrasting patterns of decision making employment and compensation in u s and japanese firms professor of economics stanford university and jonathan b lovelace professor of economics graduate school of business stanford university stanford ca 94305 respectively this work was supported by the national science foundation

target setting in tournaments theory and evidence from china motivated by the prevalence of economic targets at all levels of territory administration in china this article proposes a tullock contest model to study optimal target setting in a multi layered tournament based organisation in our model targets are used by upper level officials to convey the importance of economic growth and incentivise subordinates in the tournaments our model predicts a top down amplification of economic growth targets along the jurisdiction levels which explains the observed pattern in china using both provincial and prefectural level data we test the model predictions and find consistent evidence

self selection and the efficiency of tournaments when exogenously imposed rank order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance bull schotter and weigelt 1987 however since the efficiency of performance related pay is attributable both to its incentive effect and to its selection effect among employees lazear 2000 it is important to investigate the ex ante sorting effect of tournaments this paper reports results from an experiment analyzing whether allowing subjects to self select into different payment schemes helps in reducing the variability of performance in tournaments we show that when the subjects choose to enter a tournament the average effort is higher and the between subject variance is substantially lower than when the same payment scheme is imposed sorting is efficiency enhancing since it increases the homogeneity of the contestants we suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay

demand for gasoline in kuwait an empirical analysis using cointegration techniques abstract this paper estimates the demand for gasoline in kuwait for the period 1970 1989 using a cointegration and error correction model ecm it is found that gasoline demand is inelastic with respect to price in the short and long run and while it is elastic in the long run gasoline demand is inelastic with respect to income in the short run this suggests that gasoline demand response to income changes is higher in the long run than in the short run furthermore gasoline consumption adjusts towards its long run level with about 52 of the adjustment occurring in the first year

a cointegration analysis of gasoline demand in the united states time series estimation of gasoline demand elasticities often does not take into account the possibility of nonstationarity in the underlying data which may render the parameter estimates spurious studies have shown that the time trending variables used to explain gasoline demand could be difference stationary and therefore may require cointegration analysis to assess the relationship among the trending variables in this work we use the cointegration technique to derive long run and short run demand elasticities of noncommercial gasoline consumption using time series data for the usa from 1949 to 2004 we also attempt to incorporate the presence of a structural break in the data generation process of the time trending variables our results show that the consumption of gasoline and lifetime income have a long term stable relationship after the second oil shock of 1978 prior to the first oil shock of 1973 no such long run relationship could be established through cointegration

competition among contests when several contests compete for the participation of a common set of players a contest s allocation of prizes not only induces incentive effects but also participation effects our model predicts that an increase in the sensitivity with which contest outcomes depend on players efforts makes flatter prize structures more attractive to participants in equilibrium contests that aim to maximize the number of participants will award multiple prizes if and only if this sensitivity is sufficiently high moreover the prize awarded to the winner is decreasing in the contests sensitivity we provide empirical evidence from professional road running using race distance as a measure of sensitivity we show that steeper prize structures are more attractive to top ranked runners in longer that is less sensitive races in line with our theory longer races do in fact offer steeper prize structures

executive pay at publicly listed firms in china abstractthis article explores the executive compensation structure in china using unbalanced panel data on 17 178 executives in 1 386 publicly listed firms in china during 1999 2006 we find that 1 both executive pay and the pay gap between executive ranks increased over time 2 pay distribution skews toward the top of the firm with the pay gap between the ceo and the second tier executives vice presidents being the largest 3 the pay gap between the ceo and vice presidents increases with the number of vice presidents 4 executive pay dispersion is positively related to the variation in firm performance and 5 executive pay is negatively related to state ownership overall our study shows that the executive pay structure at publicly listed firms in china has started to resemble that seen in developed market economies this development represents an important change from the egalitarian ideology that prevailed before the economic reforms

energy consumption and energy r d in oecd perspectives from oil prices and economic growth abstract we estimate the short run and long run elasticities of various types of energy consumption and energy r d to changes in oil prices and income of the 20 oecd countries over the period of 1980 2010 using the nerlove partial adjustment model npam we find negative income elasticity for coal consumption but positive income elasticity for oil and gas consumption suggesting the importance of economic growth in encouraging the usage of cleaner energy from coal to oil and gas by introducing time dummies into the regressions we show that climatic mitigation policies are able to promote the usage of cleaner energies through the dynamic linkages between energy consumption and energy r d we find that fossil fuel consumption promotes fossil fuel r d and fossil fuel r d in turn drives its own consumption renewable energy r d which is more responsive to economic growth reduces fossil fuel consumption and hence fossil fuel r d

the dispersion of employees wage increases and firm performance previous studies examining intra firm wage dispersion and firm performance have focused on wage levels the authors of this study argue that for purposes of comparing wage dispersion s positive inc

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

incentives for helping on the job theory and evidence recent advances in incentive theory stress the multidimensional nature of agent effort and specifically cases where workers affect one anothers performance through helping efforts this article models helping efforts as determined by the compensation package and task allocation the model is tested with australian evidence on reported helping efforts within work groups the evidence consistently supports the hypothesis that helping efforts are reduced while individual efforts are increased when promotion incentives are strong piece rates and profit sharing appear to have little effect on helping efforts while task variety and helping efforts are positively correlated

estimates of price elasticity of demand for urban freeway use with high frequency control variables the case of santiago chile estimates are presented of toll and fuel price elasticities of demand for urban freeway use in santiago chile high frequency toll and vehicle data were collected from four urban freeways for different route segments and times of day estimation was performed using log linear regression models whose explanatory variables were tolls fuel prices city traffic levels and sets of dichotomous variables to control for daily weekly and monthly seasonality city traffic is a high frequency control of the activity level of the city the elasticities to changes in tolls and fuel were all low in absolute value the toll elasticities were below 0 05 for two freeways and 0 16 for the third while for the fourth which had more alternative routes it was 0 47 the fuel price elasticities were also heterogeneous with values of approximately 0 45 for two freeways and 0 21 for the third whereas for the fourth which had the fewest alternatives it was 0 07

heterogeneity and performance in tournaments a test for incentive effects using professional tennis data this article provides an approach to test whether greater heterogeneity of contestants leads to lower effort exertion in elimination tournaments as predicted by conventional tournament models this prediction is difficult to test with real world data because the effort is difficult to measure based on a simple behavioural model testable implications are derived and an identification strategy is suggested that allows to test for an incentive effect of heterogeneity even when the effort is unobservable the application uses data from professional tennis tournaments and provides evidence that heterogeneity affects the incentives to exert effort

the asymmetric role of corporate governance in ceo pay determination evidence from south africa previous studies suggest that ceos may be incentivised to pursue actions aimed at restoring equity when pay deviates from the predicted ceo labour market compensation rate this study investigates

an estimation of u s gasoline demand a smooth time varying cointegration approach abstract in this paper the u s gasoline demand from 1976 to 2008 is estimated using a time varying cointegrating regression we find that price elasticity increased rapidly during the late 1970s and then decreased until 1987 after a relatively small scaled increase decrease cycle from 1987 to 2000 the price elasticity rose again after 2000 the time varying change of the elasticities may be explained by the proportion of gasoline consumption to income and fluctuation of the degree of necessity the result of the error correction model shows that a deviation from a long run equilibrium is corrected quickly and the welfare analysis illustrates there may be a gain by shifting the tax scheme from income tax to gasoline tax

environmental policy in a green market this paper studies the impact of some frequently used environmental policies in a duopolistic market where purchasers are willing to pay more for less polluting goods when consumers differ in their environmental awareness a cleaner and a dirtier variant coexist in equilibrium the higher the average willingness to pay for the good the lower are variants unit emissions but the higher are industrial aggregate effluents a maximum unit emission standard reduces unit emissions of both variants but boosts firms sales and consequently increases industrial aggregate emissions as a result social welfare may be reduced we also explore the effects of technological subsidies and product charges including differentiation of charges

testing the theory of tournaments an empirical analysis of broiler production broiler chickens are raised by contract growers whose rewards depend explicitly upon relative performance we use data on the performance of broiler producers facing both tournament and linear performance evaluation compensation structures to test three predictions from the theory of tournaments that changes in the level of prizes that leave prize differentials unchanged will not affect performance that in mixed tournaments more able players will choose less risky strategies and that tournament organizers will attempt to handicap players of unequal ability or reduce mixing to avoid the disincentive effects of mixed tournaments our evidence is consistent with each prediction

quitters never win the adverse incentive effects of competing with superstars internal competition may motivate worker effort yet the benefits of competition may depend critically on workers relative abilities large skill differences may reduce efforts i use panel data from professional golf tournaments and find that the presence of a superstar is associated with lower performance on average golfers first round scores are approximately 0 2 strokes worse when tiger woods participates relative to when woods is absent the overall tournament effect is 0 8 strokes the adverse superstar effect varies with the quality of woods s play there is no evidence that reduced performance is attributable to media attention intensity or risky strategy adoption

the incentive effects of tournaments revisited evidence from the european pga tour this analysis of data from the 1987 european men s professional golf association pga tour strongly supports the hypothesis that the level and structure of prizes in pga tournaments influence players performance specifically players performance appears to vary positively with both the total money prizes awarded in a tournament and the marginal return to effort in the final round of play a value that varies among players largely depending on how the prize money is allocated among finishers of different ranks the authors suggest that these results together with the similar results of their earlier study of the 1984 u s men s pga tour may have implications for the design of compensation systems for certain groups of workers such as corporate executives college professors and salespeople

pay inequality and firm performance evidence from matched employer employee data a large matched employer employee data set for sweden is used to test several predictions from tournament theory for white collar workers a positive and significant effect of intra firm wage dispersion on profits and average pay is found using various measures of wage dispersion this result is robust for controlling for firm differences in human capital and firm fixed effects as well as for instrumenting the wage dispersion variable to take into account endogeneity of wage dispersion using data on around 10 000 managers a positive and significant association between pay dispersion and profits is also found for executives further results include a positive relationship between market demand volatility and wage dispersion measured as coefficient of variation in managerial pay and a negative effect of the number of managers contestants on managerial pay spread the first two results are in accordance with predictions from tournament theory while the last one is not

tournaments without prizes evidence from personnel records we use a quasi experimental research design to study the effect of giving workers feedback on their relative performance the setting is a firm in which workers are paid piece rates and where for exogenous reasons management begins to reveal to workers their relative position in the distribution of pay and productivity we find that merely providing this information leads to a large and long lasting increase in productivity that is costless to the firm our findings are consistent with the interpretation that workers incipient concerns about their relative standing are activated by information about how they are performing relative to others this paper was accepted by olav sorenson organizations

how many winners are good to have on tournaments with sabotage abstract from an employer s perspective a tournament should induce agents to exert productive activities but refrain from destructive ones we experimentally test the predictive power of a tournament model which suggests that within a reasonable framework productive and destructive activities are influenced neither by the number of agents taking part in the tournament nor by the fraction of the winner prizes our results clearly confirm that sabotage in tournaments indeed occurs while tournament size has virtually no effect on behavior a balanced fraction of winner and loser prizes appears to enhance productive activities

dispersion in wage premiums and firm performance abstract using matched employer employee panel data we estimate measures of pay dispersion per firm year that take into account both firm and worker unobserved heterogeneity unlike research that controls only for differences in observables we find that within firm pay inequality is significantly associated to lower firm performance

how uncertainty and ambiguity in tournaments affect gender differences in competitive behavior abstract tournament incentives prevail in labor markets yet the number of tournament winners is often unclear to competitors while it is hard to measure how this uncertainty affects work performance and willingness to compete in the field it can be studied in a controlled lab experiment we present a novel experiment where subjects can compete against each other but the number of winners is either uncertain but with known probabilities or ambiguous with unknown probabilities for different numbers of winners we compare these two conditions to a control treatment with a known number of winners we find that ambiguity induces a significant increase in the performance of men who choose to compete while we observe no change for women men also increase their willingness to enter competition in the presence of ambiguity overall both effects contribute to men winning the tournament significantly more often than women under uncertainty and ambiguity these findings suggest that management should make tournament conditions transparent and information available in order to prevent gender disparities from increasing under uncertainty and ambiguity

optimal tournament contracts for heterogeneous workers abstract we consider a rank order tournament between workers with different abilities under malcomson s self commitment property the employer optimally uses individual tournament prizes to extract rents from the workers without the self commitment property individual prizes are used to make the asymmetric competition less uneven by discriminating against the more able worker i e he is offered a lower winner prize than the less able worker in this spirit individual prizes serve as a substitute for handicaps

the distribution of talent across contests do the contests with the largest prizes attract the most able contestants to what extent do contestants avoid competition in this paper we show theoretically and empirically that the distribution of abilities plays a crucial role in determining contest choice complete sorting exists only when the proportion of high ability contestants is sufficiently small as this proportion increases high ability contestants shy away from competition and sorting decreases such that reverse sorting becomes a possibility we test our theoretical predictions with a large panel data set containing contest choice over twenty years we use exogenous variation in the participation of highly able competitors to provide empirical evidence for the relationship among prizes competition and sorting

tournament incentives and match outcomes in women s professional tennis our research examines the effect of prize money differentials in women s professional tennis tournaments on the probability that the favoured player wins the match this study adds to the existing literature on tournament theory through its focus on rosen s 1986 elimination style match play tournament model we estimate a standard probit model using a unique data set containing detailed information on prize money player specific characteristics and match play outcomes for all tournaments played during the 2004 tour sponsored by the women s tennis association wta our results support predictions by rosen s tournament model larger prize money differentials have a positive statistically significant effect on the favoured player s probability of winning the match in addition the number of stages remaining has a significant negative effect on winning consistent with tournament theory predictions associated with the number of contestants in a tournament

are competitors forward looking in strategic interactions field evidence from multistage tournaments abstract this paper investigates whether decision makers are forward looking in dynamic strategic interactions and incorporate variations of continuation values in their choices using data from professional and semi professional basketball tournaments we find that the expected relative strength of a team in future interactions indeed affects behavior in the present the results also show that the response to changes in the continuation value is stronger if the structure of prizes is convex across stages if the players are in a decisive game and if the prevalence of free riding within a team is low

an empirical analysis of gasoline demand in denmark using cointegration techniques abstract danish time series data covering the period 1948 1991 are used in order to estimate short run and long run elasticities in gasoline demand a cointegration test for a stable long run relationship between the variables in the model proves to be positive showing a smaller value of the long run price elasticity than often quoted in empirical studies of gasoline demand finally an error correction model is estimated

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

contest theory and sport contrary to most sports fans economists tend to view tournaments not only as a mechanism to identify the most able and most talented athlete s but also as an instrument to increase the athletes effort levels by designing an adequate compensation system that takes into account the specificities of the contest under consideration the paper proceeds in two different steps first it reviews the available evidence on sports contests and identifies some puzzles that have not yet been resolved in the literature the empirical separation of selection and incentive effects and the impact of incentive pay in team settings second it addresses these puzzles and offers some new evidence supporting the basic assumptions offered by economic theory copyright 2003 oxford university press

losing to win tournament incentives in the national basketball association the focus of tournament models has been rank order compensation schemes whereby participants receive higher payments for higher relative performance either incrementally or winner takes all our research focuses on a unique tournament that offers rewards for both winning and losing specifically the national basketball association s regularly scheduled season of games we examine three nba seasons to determine whether team performance responded to changes in the underlying tournament incentives provided by the nba s introduction and restructuring of the lottery system to determine draft order our results yield strong evidence that nba teams are more likely to lose when incentives to lose are present

classic promotion tournaments versus market based tournaments as initially formulated in the seminal analysis of lazear and rosen 1981 an important perspective for understanding the role of promotions in firms is the tournament perspective that is a promotion and in particular the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital in this paper i consider whether the best way to model promotion tournaments is by having firms commit to prizes ex ante as in lazear and rosen s initial formulation or whether promotion prizes should be modeled as arising from the signaling role of promotions and the competition between firms for promoted workers

information policy in tournaments with sabotage sabotage is one of the main problems of tournament like reward schemes workers who are leading in a tournament are more dangerous rivals and are therefore sabotaged more heavily this implies that there is an extra cost to becoming a leader and hence to choosing high productive effort in the early stages of a tournament the incentives to exert productive effort are thereby reduced we show that this problem can be solved by concealing intermediate information on the performances of workers i e by clever information management moreover we offer experimental evidence indicating that such information management does increase productive efforts

the future of personnel economics personnel economics is defined as the application of microeconomic principles to human resources issues that are of concern to most businesses the field now about 20 years old arose for three reasons first those of us who were teaching standard labour economics to business students encountered a disinterested audience business students believe that labour supply and demand unemployment investment in education and other topics which are of primary concern to labour economists are almost irrelevant to their future business careers their boredom with what we had to sell signalled that a change in the product might be warranted second the issues studied by human resources specialists were of interest to economists but the approach taken by the non economist was unsatisfying it was loose unfocused and ad hoc and lacked the general rigorous framework to which economists have grown accustomed the economist s reaction was to enter an industry where it was believed rents existed third the technology of economics changed as a result of some breakthroughs particularly those dealing with agency and contract theory economists were better equipped to tackle problems that had evaded them in the past

investment tournaments when should a rational agent put all eggs in one basket we study investment tournaments a class of decision problems involving gradual allocation of investment among several alternatives whose values are subject to shocks the decision maker s payoff is determined by the final values of the alternatives an important example of such tournaments is the career choice problem since a person typically starts by investing in learning several professions we show that in many cases it is optimal for the decision maker to allocate all resources to the most promising alternative in each time period we also show that in promotion tournaments the workers optimally exert higher efforts at an early stage in order to capture a larger share of employer s investment such as mentoring

job satisfaction and co worker wages status or signal we use matched employer employee panel data to show that individual job satisfaction is higher when other workers in the same establishment are better paid this runs counter to substantial existing evidence of income comparisons in subjective well being we argue that the difference hinges on the nature of the reference group we here use co workers their earnings not only induce jealousy but also provide a signal about the worker s own future earnings in our data this positive future earnings signal outweighs any negative status effect this phenomenon is stronger for men and in the private sector but weaker for those nearer retirement

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

the demand for transport fuels in turkey abstract in this paper we estimate the demand for transport fuels in turkey specifically using four different models namely a partial adjustment model a distributed lag model an autoregressive distributed lag model and an error correction model we estimate gasoline and diesel demand functions with quarterly data covering the period 2003 q1 2014 q3 we find a stable long run relationship only for diesel demand income and price our results imply that gasoline demand does not respond to income and price in the long run reflecting a shift from gasoline towards diesel induced by differential tax policies furthermore we find that transport fuel demand is price inelastic making tax on fuel a perfect tool for raising budget revenues in addition our results suggest that fuel demand responds to negative and positive price changes symmetrically

are you satisfied with your pay when you compare it depends on your love of money pay comparison standards and culture we develop a theoretical model of income and pay comparison satisfaction with two mediators love of money and pay comparison standards examine the direct and the indirect paths of our model and treat culture the us vs spain as a moderator based on 311 professors in the us and spain we demonstrate a positive direct path and a negative indirect path our subsequent multi group analysis illustrates for american professors their direct path shows that income is directly related to high pay comparison satisfaction their indirect path reveals the following new insights professors with high income have a strong love of money orientation set their pay equity comparison standards deserved pay and other s salary significantly higher than their own salary and as a consequence have low pay comparison satisfaction for spanish professors love of money is not related to their pay comparison standards which are slightly non significantly higher than their own self reported income neither the direct nor the indirect path is significant the standardized total effect of income to pay satisfaction is positive for american professors but negligible for spanish professors are you satisfied with your pay when you compare our results demonstrate that pay comparison satisfaction depends on not only one s income but also one s love of money and pay equity comparison standards which may vary across cultures

an opposing responses test of classic versus market based promotion tournaments we use a systems based econometric method to show that classic and market based tournament models are empirically distinguishable since the role of risk differs across these models implementing the method using a large finnish worker firm matched panel we find support for classic tournaments given that promotions depend on relative performance the firm s wage structure is convex promotion probabilities are decreasing in the number of competitors performance is increasing in the wage spread and workers and firms adjust their choice variables in opposite directions when the variance of the stochastic component of worker performance changes

short and long run elasticities of gasoline demand in india an empirical analysis using cointegration techniques abstract in developing countries like india consumption of petroleum products has implications on its balance of payments economic growth and fiscal deficit gasoline is one of the prime petroleum products in this paper the relationship between gasoline demand national income and price of gasoline is empirically examined using cointegration and error correction techniques the time frame of the analysis is from 1972 1973 to 1993 1994 it has been found that gasoline demand is likely to increase significantly for a given increase in the gross domestic product the increase will be larger in the long run 2 682 than in the short run 1 178 gasoline demand is relatively inelastic to price changes both in the long and short terms the error correction model has shown that gasoline demand adjusts to their respective long run equilibrium at a relatively slow rate with about 28 of adjustment taking place in the first year

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

institutions and performance in european labour markets taking a fresh look at evidence this paper presents a selective survey of the recent literature on labour market institutions and offers new empirical eu based evidence on the impact of labour market reforms on employment and labour market adjustment although the literature traditionally treats labour market institutions as exogenous attention shifted recently towards understanding the underlying causes of specific institutional arrangements as a consequence the literature highlights the great importance of an efficient policy design exploiting these interactions wisely and identifies general principles for achieving an efficient policy design at both macro and micro levels although empirical evidence does not show a major change in terms of intensity of labour market reform after the setting of the economic and monetary union and the creation of the euro the reforms aiming at strengthening the labour market attachment of vulnerable groups tend to have been successful both in raising their employment and increasing labour market adjustment

short run long run and cross elasticities of gasoline demand in brazil gasoline is one of the most important of the oil derived products its importance is closely related to its participation in the value of imports of many countries and in a number of cases it is one of the determinants of their balance of payment deficit fiscal deficit and economic growth as opposed to most nations brazil has had a gasoline substitute since 1985 alcohol many studies have tried to estimate the income and price elasticities of the demand for gasoline in several countries this paper extends previous studies by estimating the cross price elasticity between gasoline and alcohol our findings indicate that alcohol is an imperfect substitute for gasoline even in the long run as a consequence the need for a new fuel substitution must be initiated long before petroleum reserves vanish

incentives and problem uncertainty in innovation contests an empirical analysis contests are a historically important and increasingly popular mechanism for encouraging innovation a central concern in designing innovation contests is how many competitors to admit using a unique data set of 9 661 software contests we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases greater rivalry reduces the incentives of all competitors in a contest to exert effort and make investments at the same time adding competitors increases the likelihood that at least one competitor will find an extreme value solution we show that the effort reducing effect of greater rivalry dominates for less uncertain problems whereas the effect on the extreme value prevails for more uncertain problems adding competitors thus systematically increases overall contest performance for high uncertainty problems we also find that higher uncertainty reduces the negative effect of added competitors on incentives thus uncertainty and the nature of the problem should be explicitly considered in the design of innovation tournaments we explore the implications of our findings for the theory and practice of innovation contests this paper was accepted by christian terwiesch operations management

estimating long run economic equilibria with stochastic trends an asymptotic theory is provided to analyze a menu of currently existing estimators of cointegrated systems we study in detail the single equation ecm seecm approach of hendry our theoretical results lead to prescriptions for empirical work such as specifying seecm s nonlinearly and including lagged equilibrium relationships rather than lagged differences of the dependent variable as covariates simulations support these prescriptions and point to problems of overfitting not encountered in the semiparametric approach of phillips and hansen 1990

reconsidering pay dispersion s effect on the performance of interdependent work reconciling sorting and pay inequality pay dispersion in interdependent work settings is virtually universally argued to be detrimental to performance we contend however that these arguments often confound inequality with inequity t

a game level analysis of salary dispersion and team performance in the national basketball association using game level panel data on the national basketball association nba we examine the causal effect of within team salary dispersion on team performance we exploit three measures of salary dispersion and examine the effect at three levels whether the outcome of the game is influenced by salary dispersion among 1 players participating in the current game active players 2 players who played more than half of their team s games in a season regular and occasional players and 3 the entire player population regardless of the measures used we find that salary dispersion does not influence team performance

analysing gasoline demand elasticities a survey this paper is a survey of studies on gasoline demand although there are very many dxerent studies in this eld which sometimes appear to arrive at contradictory results we find that with proper stratification of studies by model and data type much of the contict turns to consensus in this survey we classtfy studies by data type and by ten d erent categories of model and with the exception of estimates on seasonal data which tend to be unstable and of certain inappropriate model formulations we find a fair degree of agreement concerning average short run and even long run income and price elasticities

elasticities of transport fuels at times of economic crisis an empirical analysis for spain abstract this paper provides an updated calculation of the price and income responsiveness of spanish consumers of transport fuels with an explicit exploration of the effects of the recent economic crisis we examine separate gasoline and diesel demand models using a set of estimators on a panel of 16 spanish regions over the period 1999 2015 the paper confirms the persistence of low own price elasticities both for diesel and gasoline in the short and long runs it also shows that the crisis of 2008 2013 slightly increased the price elasticity of demand for transport fuels with a higher effect on diesel than on gasoline by contrary the crisis slightly reduced the income elasticity of transport fuel demand given the intensity and length of the economic recession in spain the results of this paper may be useful to anticipate the effects of domestic public policies that impact transport fuel prices as well as to advance some of the potential consequences of crises elsewhere

road transport energy demand in australia a cointegration approach abstract a cointegration framework is used to examine the short run and long run characteristics of energy demand in the australian road transport sector a lagged endogenous equation based on a partial adjustment process is proposed and estimated results indicate that energy demand output and real energy prices are integrated of order 1 and cointegrated the long run output and price elasticities of energy demand are estimated to be 0 52 and 0 12 respectively causality tests ervealed a bidirectional causality path between output and energy demand and a unidirectional path from energy consumption to prices no other causality paths between output prices and energy demand are detected the short run output elasticity of energy demand is estimated to be 0 25 based on an error correction model the short run price elasticity is found to be insignificant the inertia parameter is 0 48 corresponding to 95 of the demand adjustment occurring after five periods the results are compared with previous findings and the variations are partially attributed to the structural changes in the road transport sector in the 1980s some of which are discussed

executive compensation and tournament theory empirical tests on danish data this article adds to the empirical literature on tournament theory as a theory of executive compensation i test several propositions of tournament models on a rich data set containing information about 2 600 executives in 210 danish firms during a 4 year period i ask are pay differentials between job levels consistent with relative compensation is pay dispersion between levels higher in noisy environments is the dispersion affected by the number of tournament participants is average pay lower in firms with more compressed pay structures does wider pay dispersion enhance firm performance most of the predictions gain support in the data

interim rank risk taking and performance in dynamic tournaments we empirically study the impact of interim rank on risk taking and performance using data on professionals competing in tournaments for large rewards as we observe both the intended action and the performance of each participant we can measure risk taking and performance separately we present two key findings first risk taking exhibits an inverted u relationship with interim rank revealing information on relative performance induces individuals trailing just behind the interim leaders to take greater risks second competitors systematically underperform when ranked closer to the top despite higher incentives to perform well disclosing information on relative ranking hinders interim leaders

merit pay and wage compression with productivity differences and uncertainty abstract this paper experimentally investigates wage setting and effort choices in a multi worker setting when there is heterogeneity in worker productivity and managers perception of this productivity is imperfect worker ability is assigned via an aptitude test and in an innovative design manager uncertainty concerning this ability is related to the manager s own test performance we propose a merit pay hypothesis that higher ability workers will reduce their effort if they are not paid more than coworkers with lower ability but not vice versa based on a simple model we also predict that the higher the uncertainty about employee ability levels the more managers compress wages between perceived high and low ability workers we find strong experimental support for both hypotheses

tournament rewards and risk taking this article considers a lazear rosen tournament model where agents can influence both the spread of their output distribution risk taking and its mean the unique equilibrium induces excessive risk taking and a low level of effort by modifying the tournament to give the highest prize to the agent with the most moderate output a low level of risk taking and high level of effort can be sustained as an equilibrium the first result can be useful to understand the relative performance evaluation puzzle of executive compensation and the second result can be useful to understand puzzling workplace norms promoting mediocrity

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

sabotage in tournaments evidence from a laboratory experiment although relative performance schemes are pervasive in organizations reliable empirical data on induced sabotage behavior are almost nonexistent we study sabotage in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads additionally we find that also in the presence of tournament incentives agents react reciprocally to higher wages by exerting higher effort destructive activities are reduced by explicitly calling them by their name sabotage communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output if sabotage is not possible the principals choose tournament incentives more often this paper was accepted by peter wakker decision analysis

same or different the ceo labour market in china s public listed companies using linked employer employee data for all china s public listed firms over the period 2001 10 we find top executive compensation exhibits many of the traits familiar in the western literature although sometimes in a more muted way and with some clear exceptions we also find a role for managerial power in executive pay setting which may reflect the recency of the stock market and regulations underpinning corporate governance nevertheless there appear to be some elements of executive compensation which transcend national economic political and cultural differences the implication is that the western model is not as idiosyncratic as critics suggest

men women and competition an experimental test of behavior this study reports a series of experiments that examine outcomes when agents are able to choose between a payment scheme that rewards based on absolute performance i e piece rate and a scheme that rewards based on relative performance i e a tournament we test for the presence and persistence of gender differences in performance and the rate of entry into the tournament option and whether these differences are sensitive to the structure of the tournament rewards in the winner take all wta condition only the best performer in the tournament for each round received a payment 4 50 in the graduated tournament condition the same payment 4 50 was divided among the first second and third finishers in the tournament in the wta condition men showed significantly lower forecast errors than women in addition a clear sorting effect occurs in the wta condition in early rounds of the wta condition male entrants into the tournament show significantly lower forecast errors than female tournament entrants however the difference disappears over time after controlling for forecasting skill gender did not predict entry into the tournament for the wta condition however lower forecasting skill reduced the probability of entry in the graduated tournament the situation was reversed men entered the tournament at significantly higher rates even after controlling for skill forecasting skill had no impact on the decision to enter the tournament while the average male entrant to the tournament had lower forecast errors than the average female entrant the men entered at much higher rates as a consequence men were much more likely than women to enter the tournament too frequently

promotions and incentives the case of multistage elimination tournaments promotions play an important role for the provision of incentives in firms we analyze incentives in multistage elimination tournaments with controlled laboratory experiments in our two main treatments we compare a two stage tournament to a one stage tournament subjects in the two stage treatment provide excess effort in the first stage both with respect to nash predictions and compared to the strategically equivalent one stage tournament additional control treatments confirm that excess effort in early stages is a robust finding and suggest that above equilibrium effort might be driven by limited degrees of forward looking behavior and subjects deriving nonmonetary value from competing

pursuing extended producer responsibility in the context of eips by a hotelling model abstract this paper offers a prescriptive suggestion to preserve the extended producer responsibility goal in an eco industrial park a novel hotelling model in reverse trading direction is developed to examine the technology position decisions between specialized recycling processors we find that the notion of eco industrial parks may not always be compatible with extended producer responsibility which motivates producers to improve their eco design in clean production within the context of competition based on our analysis competition helps certain types of parks become self organized such that constituent firms spontaneously improve their eco design if eco design is not improved in a park due to the existing competition and production conditions an ordinary tax subsidy should be sufficient to make the parks self organized therefore eco industrial parks can be re aligned to their environmental goals

the effect of wage dispersion on team outcome and the way team outcome is produced the impact of intra team pay dispersion on team productivity is a highly discussed issue on the one hand wage differentials provide incentives for higher employee effort on the other hand pay inequality may reduce team cohesiveness and increase feelings of relative deprivation leading to lower performance analysing nonlinear effects of wage dispersion in professional soccer we find empirical evidence that team performance is strongest when there is either very high or very low wage inequality medium levels produce the weakest team performance in addition we show that the pay structure affects the team s playing style even after controlling for team and coach heterogeneity we discuss the theoretical and managerial implications as well as the limits of generalization

incentives versus sorting in tournaments evidence from a field experiment existing field evidence on rank order tournaments typically does not allow disentangling incentive and sorting effects we conduct a field experiment illustrating the confounding effect students in an introductory microeconomics course selected themselves into tournaments with low medium or high prizes for the best score at the final exam nonexperimental analysis of the results would suggest that higher rewards induce higher productivity but a comparison between treatment and control groups reveals that there is no such effect this stresses the importance of nonrandom sorting into tournaments

nash equilibrium in duopoly with products defined by two characteristics this article analyzes the analogue ofhotellingls duopoly model when products are dejned by two characteristics using the assumptions of the original model of hotelling we show that demand and projt functions are continuous for a wide class of utility functions when the utilityfunction is linear in the euclidean distance in the space of characteristics a noncooperative equilibrium in prices exists for all symmetric locations ofjirms this is in contrast to the result in the one characteristic model where a noncooperative equilibrium exists only when products are very diferent the noncooperative equilibria are calculated and fully characterized in contrast with the one dimensional model of hotelling where equilibrium prices were constant irrespective of distance of symmetric locations here equilibrium prices tend to zero as the distance between products approaches zero

measuring effort incentives in a tournament with many participants theory and application i introduction a tournament competition in which rewards are determined by the relative rank rather than the absolute performance typically arises when there is competition for limited spaces this kind of competition is ubiquitous there is competition for promotion to a limited space in any kind of hierarchical organization including firms grants or scholarships have a limited amount of funds to be distributed and universities have a limited number of enrollment slots and as such students have to compete to obtain a space it is of great interest how effort incentives change in response to a change in a tournament structure the designer of a tournament is free for one reason or another to choose the size of prizes or the proportion of winners for example given a total amount of prizes rewards may be concentrated at the top ranking or spread out down to middle rankings we can give the top prizes to a very limited portion of participants or spread throughout among a relatively larger portion these changes will generally affect the participants effort incentives and it would be useful to know the effects although theories can provide some evaluations the predictions are not generally definite incentive effects of a tournament have been quite widely studied green and stokey 1983 lazear and rosen 1981 o keefe viscusi and zeckhauser 1984 among others there also have been some theoretical endeavors to design the optimal contest structure to induce maximal possible efforts from the participants moldovanu and sela 2001 2006 however the evaluation quite often depends on parameter values which can vary in different environments and empirical judgment is still warranted this article is an attempt to empirically evaluate incentive effects of an arbitrary change in a tournament structure based on a theoretical modeling we model a tournament competition with many participants possibly with different abilities we obtain an empirically measurable term from participants optimization conditions of effort choices and show that effort incentives under various competition structures can be ranked by comparing the values of these measurable terms the term employed is related to the empirical densities of the performance distribution at cutoffs when an empirical performance distribution emerges we can find cutoff performances that are borderlines between adjacent prizes for a random participant a density is an ex ante probability that his or her performance will be at this borderline for a participant whose performance is near a cutoff a bit more effort will tip his or her performance into a higher prize area the effort incentive is dependent on these densities along with reward differences therefore the empirical performance distribution contains all the necessary information for the effort incentive as it emerges as a mixture of the ability distribution and the noise of performances we can compare effort incentives with any two arbitrary competition structures as long as they are competitions with many participants as the competition structure changes the performance distribution and the relevant cutoffs will change however they are still observable with information on rewards which can also be changed we can calculate and compare the terms we need the method of this article is different from that of the existing empirical literature in that the current article provides a measure of effort incentives directly from the theoretical model existing literature attempts to measure a change in effort incentives either by directly observing effort levels in an experimental setting or by comparing performances indirectly representing effort levels for example harbring and irlenbusch 2003 report directly observed efforts in different experimental settings to demonstrate the incentive effects of different tournament designs

emotions in tournaments abstract we introduce a concept of emotions that emerge when agents compare their own performance with the performances of other agents assuming heterogeneity among the agents the interplay of emotions and incentives is analyzed within the framework of rank order tournaments which are frequently used in practice tournaments seem to be an appropriate starting point for this concept because a tournament induces incentives by making agents compare themselves with their opponents we identify certain conditions under which the principal benefits from emotional agents furthermore the concept of emotions is used to explain the puzzling findings on the oversupply of effort in experimental tournaments

structural estimation of rank order tournament games with private information in this article we propose and solve a game theoretic model of a rank order tournament with private information using the contract settlement data from a poultry company we estimate a fully structural model of a symmetric nash equilibrium of this game we show that growers equilibrium effort depends on four factors the spread in piece rates between the performance brackets the number of players in each tournament the number of performance brackets used and the density of growers private shocks we use estimates to simulate how changes in the tournament characteristics affecting equilibrium effort impact the growers and the integrator s welfare in most sporting events prizes are awarded not on basis of absolute performance but based on relative performance or tournaments be sides sporting events tournaments are also frequently used in labor contracts the name tournament typically suggests a rank order ordinal scheme such as is considered by lazear and rosen 1981 whereas a broader definition applies to any compensation scheme based on relative performance e g nalebuff and stiglitz 1983 tsoulouhas and vukina 1999 despite the sizeable theoretical litera ture on tournaments empirical work related to these models remains rather limited most of the theoretical literature on tournaments see mclaughlin 1988 for a survey has been con cerned primarily with the comparison of tour naments against various independent reward structures under various assumptions about risk preferences the number of participants and prizes specifications of production shocks and the asymmetry of information previous empirical work has largely focused on testing the predictions of the theoretical models this includes articles on executive compensation e g main o reilly and wade 1993 ericksson 1999 gibbons and murphy 1990 profes sional sports e g ehrenberg and bognanno