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

the upside potential of hiring risky workers evidence from the baseball industry making use of performance data for baseball players this article provides empirical evidence in support of lazear s 1998 theoretical predictions that 1 risky workers will earn a premium for their upside potential 2 this risk premium will be higher the longer a worker s work life and 3 firms must enjoy some comparative advantage in the labor market to be willing to pay a premium to risky workers the validity of lazear s predictions carries implications for wage differentials between young and old workers and between men and women

the incentive effects of levelling the playing field an empirical analysis of amateur golf tournaments levelling the playing field is an important policy instrument to guarantee an equitable competition among heterogeneous individuals however the incentive effects of those policies are usually not explicitly addressed in empirical studies in this article the performance in amateur golf tournaments is analysed to gain insights into the incentive effects of those types of policies the empirical analysis takes advantage of the fact that tournaments in amateur golf are of two distinctive types that apply different scoring rules while one scoring rule is based on gross scores i e the total number of strokes of a player the second scoring rule is based on net scores where the total number of strokes is normalized with respect to the respective player s handicap performance comparisons of players who participated in both types of tournaments suggest that levelling the playing field as in tournaments based on net score has positive and significant performance effects

assessing participation in voluntary environmental programmes in the developing world the role of fdi and export orientation on iso14001 adoption in thailand empirical assessments of the determinants of firm participation in voluntary environmental programmes veps in the developing world are largely absent from the environmental regulation literature leaving a number of important factors unique to such countries unexplored this article examines these factors namely the roles played by foreign direct investment fdi and export orientation in addition to factors deemed important in the industrialized world context to the problem of iso14001 adoption in one developing nation thailand we make use of unique primary data from 494 firms and focus on three important industries the resource based food and beverages industry the labour intensive textiles and wearing apparel industry and the more high technology electronics and electrical appliances industry we find that fdi plays a role in iso14001 adoption especially fdi from organization for economic co operation and development oecd and iso14001 rich countries other important determinants include fi

a rule of one a rule ofone one rational person is enough to make a market one irrational person is enough to break a game let me explain the power of the market as an exchange institution rests in its ability to move resources from lowto highvalued uses the market works if one person is rational enough to look for arbitrage opportunities among the other irrational players he buys low and sells high the market collects and disseminates this information such that others

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

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

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

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

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

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

work incentives hierarchy and internal labor markets this paper argues that contracts with payment based on a ranking of employee performance can provide performance incentives even under asymmetric information that prevents payment based on individual performance only being enforceable such contracts also fit with five features of labor markets that have aroused considerable interest 1 hierarchical wage structures 2 internal promotion 3 wage rates that rise with seniority and experience more than productivity 4 the variance of earnings increasing with experience and 5 wage rates attached to jobs rather than individuals with differentials set by administrative procedures rather than by reference to external market wages

incentives and superstars on the lpga tour following ehrenberg and bognanno 1990a b this study explores the role of incentives on the 2000 lpga tour overall it finds them to have limited effectiveness several possible explanations are considered including unmeasured differences in both abilities and courses and variations in the distribution of prizes across tournaments the existence of a superstar effect is also considered

the effort effects of prizes in the second half of tournaments abstract the theory of tournaments predicts that a worker s effort depends on the difference between the winning and losing prizes as well as the degree that increases in effort affect the probability of winning this paper tests these predictions using a data set from arabian horse racing jockeys increase their efforts lower their times in the second half of races when the amount of prize money lost by dropping a place is greater and when there is less distance between them and their closest competitors these findings are consistent with the theory

skating on thin ice rule changes and team strategies in the nhl in an effort to stimulate a more exciting and entertaining style of play the national hockey association nhl changed the rewards associated with the results of overtime games under the new rules teams tied at the end of regulation both receive a single point regardless of the outcome in overtime a team scoring in the sudden death 5 minute overtime period would earn an additional point prior to the rule change in the 1999 2000 season the team losing in overtime would receive no points while the winning team earned 2 points this paper presents a theoretical model to explain the effect of the rule change on the strategy of play during both the overtime period and the regulation time game the results suggest that under the new overtime format equally powerful teams will play more offensively in overtime resulting in more games decided by a sudden death goal the results also suggest that while increasing the likelihood of attacking in overtime the rule change would have a perverse effect on the style of play during regulation by causing them to play conservatively for the tie empirical data confirm the theoretical results the paper also show that increasing the rewards to a win in regulation time would not prevent teams from playing defensively during regular time

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

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

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

psychological pressure in competitive environments evidence from a randomized natural experiment much like cognitive abilities emotional skills can have major eects on performance and economic outcomes this paper studies the behavior of professional subjects involved in a dynamic competition in their own natural environment the setting is a penalty shoot out in soccer where two teams compete in a tournament framework taking turns in a sequence of ve penalty kicks each as the kicking order is determined by the random outcome of a coin ip the treatment and control

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

the trade off between supervision cost and performance based pay does gender matter the study adds to the literature by providing new empirical evidence consistent with efficiency wage theory and by providing estimates of the average cost of supervising a worker by industry this research uses the 1996 wave of the nlsy and incorporates estimates of supervision cost computed from industry classifications we further detect presence of no gender differences neither in risk averseness nor in productivity gains associated with cost of supervision and performance based pay while the findings imply that employers should consider the incentive effects of supervision and performance based pay when constructing pay schemes there is no need for employers to devote resources to constructing gender specific payment mechanisms our evidence suggests that profit maximizing firms should treat males and females equally and develop gender neutral pay schemes

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

labor taxation and foreign direct investment in this paper we analyze the implications of the effective taxation of labor for profits and hence the decisions made by multinational enterprises concerning the location of their headquarters if a higher employee borne tax burden reduces manager effort it should also negatively affect firm profits and the location of the headquarters we compile data on personal income tax profiles for 52 economies and the year 2002 at different moments of the distribution of gross wages our findings suggest that higher employee borne labor taxes are less conducive to the location of headquarters and foreign direct investment stocks in a given host economy

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

economic contests comparative reward schemes contests are situations in which an individual s reward depends on his performance relative to others students are graded on a curve the candidate with the most votes gets the political office the underling who performs best is promoted to the executive position contests are useful in dealing with indivisible rewards reducing monitoring costs and minimizing risks from common uncertainties they are employed to sort potential participants and once they have entered to induce appropriate effort from them with monitoring precision and prize spreads as potential choice variables optimal contest structures are derived for fair and unfair contests among equal and unequal participants the converse problems of climbing low ability individuals enter the contest designed for high ability candidates and slumming are shown to be manageable

contest functions theoretical foundations and issues in estimation contest functions alternatively contest success functions determine probabilities of winning and losing as a function of contestants e ort they are used widely in many areas of economics that employ contest games from tournaments and rent seeking to conflict and sports we first examine the theoretical foundations of contest functions and classify them into four types of derivation stochastic axiomatic optimally derived and microfounded the additive form which includes the ratio or tullock functional form can be derived in all four di erent ways we also explore issues in the econometric estimation of contest functions including concerns with data endogeneity and model comparison

piece rates fixed wages and incentives evidence from a field experiment data from a field experiment are used to estimate the gain in productivity that is realized when workers are paid piece rates rather than fixed wages the experiment was conducted within a tree planting firm and provides daily observations on individual worker productivity under both compensation systems unrestricted statistical methods estimate the productivity gain to be 20 since planting conditions potentially affect incentives structural econometric methods are used to generalize the experimental results to out of sample conditions the structural results suggest that the average productivity gain outside of the experimental conditions would be at least 21 7

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

selection tournaments and dishonesty we conduct a real effort experiment in which performance is not monitored and participants are paid according to their reported performance participants are paid according to a piece rate and a winner take all tournament and then select between the two schemes before performing the task one more time competition increases dishonesty and lowers output when the payment scheme is exogenously determined participants with a higher propensity to be dishonest are more likely to select into competition however after selection we find no output difference between piece rate and tournament this is attributable to a handful of honest individuals who select competition

strategic behaviour in contests evidence from the 1992 barcelona olympic games analyses of strategic behaviour in contests conclude that the manner in which a contest participant exerts effort over time is systematically related to her status as a pre race underdog or favourite recently baik and shogren 1992 extented dixit s 1987 original work by incorporating endogenous order of moves by the race participants they conclude that it is always in the best interest of the underdog to move first while the favourite s optimal strategy is to wait moving second the particular economic context in which this work was framed e g research and development races makes it extremely difficult to subject the game theoretic conclusions to empirical scrutiny we solve this problem by applying the theoretical hypotheses to the track and field events held during the 1992 barcelona olympics using a fixed effects estimation procedure we find ample support for the conclusions of baik and shogren that favourites tend to start slowly in races and increase effort as the event transpires whi

epa s voluntary 33 50 program impact on toxic releases and economic performance of firms abstract this paper examines the motivations for participation in the voluntary 33 50 program and the program s impact on the toxic releases and economic performance of firms in the u s chemical industry it demonstrates that the benefits due to public recognition and the potentially avoided costs of liabilities and compliance under mandatory environmental regulations provide strong incentives for participation after controlling for sample selection bias and the impact of other firm specific characteristics this paper shows that program participation led to a statistically significant decline in toxic releases over the period 1991 93 the program also had a statistically significant negative impact on the current return on investment of firms but its impact on the expected long run profitability of firms was positive and statistically significant

difference in interim performance and risk taking with short sale constraints abstract absent much theory empirical works often rely on the following informal reasoning when looking for evidence of a mutual fund tournament if there is a tournament interim winners have incentives to decrease their portfolio volatility as they attempt to protect their lead while interim losers are expected to increase their volatility so as to catch up with winners we consider a rational model of a mutual fund tournament in the presence of short sale constraints and find the opposite interim winners choose more volatile portfolios in equilibrium than interim losers several empirical works present evidence consistent with our model however based on the above informal argument they appear to conclude against the tournament behavior we argue that this conclusion is unwarranted we also demonstrate that tournament incentives lead to differences in interim performance for otherwise identical managers and that mid year trading volume is inversely related to mid year stock return

why japanese firms choose to certify a study of managerial responses to environmental issues abstract this paper examines empirically the determinants that led large japanese manufacturers to 1 incorporate environmental goals in their decisions 2 obtain environmental certification iso 14001 and 3 become early adopters of environmental certification we estimate two sets of models 1 models based on a profit maximization assumption and 2 models which incorporate utility maximization arguments recognizing that managers values attitudes and beliefs may also influence firms decisions the empirical analysis suggests that while the costs and benefits of voluntary actions to enhance or protect the environment and the capacity to act are significant determinants of voluntary environmental commitment so are the environmental values beliefs and attitudes of managers

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 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

early round upsets and championship blowouts i introduction popular discussions of tournament play often celebrate the success of underdogs in early rounds and decry the prevalence of unexciting finals such a pattern might be just a statistical illusion there are many early round matches so some upsets are inevitable and there is only one final so it is unlikely to be the most exciting match of the tournament in this article we consider instead whether the pattern might have a real foundation in the strategic allocation of effort by tournament participants we analyze a two round tournament in which a favorite and underdog play in each of the two semifinals and then one player from each match advances to the final victory in a match is probabilistic in that the chance of winning is increasing in each player s relative quality and in his relative effort expenditure 1 each player has a fixed amount of effort to exert over the two rounds unused effort is of no value and the only payoff is from winning the tournament to maximize the chance of winning each player must balance out the benefits of expending more effort in the semifinal against the opportunity cost of having less effort available for the final favorites and underdogs both have an incentive to conserve resources for the final but the trade offs they face are different a favorite plays a weak opponent in the semifinal but is likely to face a tough opponent in the final so it has a strong incentive to hold back conversely an underdog already plays a tough opponent in the semifinal so it has less incentive to conserve effort for the final 2 because of these different incentives we find that in any symmetric nash equilibrium underdogs exert more effort than favorites do in the semifinal the extra effort does not fully compensate for lower ability and underdogs are still likely to lose but the chance of an upset rises in the final round each player expends all its remaining resources so differences in abilities are no longer compressed by strategic considerations instead an underdog who makes it to the final has fewer resources left to spend than the favorite so differences in abilities are amplified and the chance of a blowout by the favorite rises if a favorite loses to an underdog in the early rounds it is often accused of looking past the underdog to its next match even if a player s strategy is optimal ex ante it might turn out to be unsuccessful ex post so such criticism is often unfair our results imply that it is rational for the favorite to hold back on resources in the semifinal even if it correctly anticipates that in equilibrium the underdog will be playing harder sometimes the strategy will backfire but on average the favorite benefits from being in a better position for the final these results are derived using a standard contest model in which each player s probability of victory in a match is a strictly increasing function of his ability and effort 3 such models were first developed to analyze rent seeking tullock 1967 1980 and similar models appear in a wide variety of areas including patent races loury 1979 election campaigns snyder 1989 compensation schemes nalebuff and stiglitz 1983 career ladders lazear and rosen 1981 lobbying baye et al 1993 and sports contests szymanski 2003 4 more specifically we model the contest as a sequential elimination ladder tournament in which players first compete in separate groups and the winners then compete against each other rosen 1986 our result that underdogs do indeed try harder than favorites in the semifinals contrasts with that of rosen 1986 p 707 8 because the favorite has a better chance of victory in the final rosen finds that winning a semifinal match is more valuable to the favorite so the favorite tries harder than the underdog we reach the opposite conclusion because we assume that there is a fixed supply of effort to be used across rounds and unused effort in the tournament has no value

the sports business as a labor market laboratory with superior data on compensation and productivity as well as the occurrence of abrupt dramatic market structure and player allocation rules changes sports labor markets offer an excellent setting in which to test economic hypotheses this paper reviews evidence from sports in four areas employer monopsony discrimination the coase theorem and incentive contracts supervision and performance there is considerable evidence of monopsony as well as for the existence of some forms of discrimination against minority athletes incentive contracts have strong effects on player performance and behavior and there is mixed evidence on the predictions of the coase theorem

the econometric analysis of models with risk terms summary in this paper we have attempted to provide an integrated approach to the estimation of models with risk terms it was argued that there exist orthogonality conditions between variables in the information set and higher order moments of the unanticipated variable density these could be exploited to provide consistent estimators of the parameters associated with the risk term specifically it was recommended that an iv estimator should be applied with instruments constructed from the information set four existing methods commonly used to estimate models with risk terms are examined and applications of the techniques are made to the estimation of the risk term in the us c exchange market and the effects of price uncertainty upon production

incentives performance and choking in darts this paper examines how within match variation in incentives affects the performance of darts players the game of darts offers an attractive naturally occurring research setting because performance can be observed at the individual level and without obscuring effects of risk considerations and behavior of others we analyze four data sets covering a total of 29 381 darts matches of professional amateur and youth players we find that amateur and youth players display a sizable performance decrease at decisive moments professional players appear less susceptible of such choking under pressure our results speak to a growing literature on the limits of increasing incentives as a recipe for better performance

testing the determinants of income distribution in major league baseball i introduction income of professional athletes is a frequent topic of discussion of fans sportscasters and the general public economists have also increasingly been attracted to this topic because the distribution of income of these players has both policy and business implications as a consequence the report of major league baseball s mlb blue ribbon panel formed in 1998 by mlb commissioner bud selig received quite a lot of attention this panel was charged with describing and explaining the economic condition of mlb comprised of such dignitaries as former federal reserve chairman paul volker senator george mitchell yale university president richard levin and columnist george will this panel reported that team payrolls have become increasingly disparate the gap between rich and poor teams is not only wide but is growing levin et al 2000 a case in point is the fact that the salary of the highest paid player in the 2000 season los angeles kevin brown at 15 7 million was 95 of the entire payroll of the poorest team the minnesota twins the effect according to the panel s report is a dramatic decline in parity and competitiveness of mlb since 1994 a team in the top payroll quartile has won every world series game in 1999 the teams with the five largest payrolls had an average winning percentage of 0 557 whereas the five poorest teams had a comparable figure of 0 444 the report discusses various recommendations that may narrow this gap leading to what one might call convergence in team payrolls this article examines the distribution of income in mlb for 1985 to 2000 we revive and extend a technique first suggested by thurow 1970 and show how it can be used to test for time trends versus cross sectional demographic and economic aspects influencing income distribution thurow 1970 discusses the impact of various measures on median income in the present case by calculating the gini coefficient we can discuss the impact that the explanatory variables have on income inequality in the context of mlb we attempt to shed light on the reasons why teams have greater or lesser payroll disparity we leave the question of the effect of between team payroll inequality on team wins and team revenues for future research the issue of whether to use an inequality measure that is based on a particular distribution or one that is distribution free has been widely discussed in the income distribution literature silber 1999 ryu and slottje 1999 in advocating the use of parametric distributions point to several benefits of estimating the lorenz curve in this manner these benefits include the ability to summarize thousands of observation points with a few parameters the ability to estimate the density function at any point an enhanced ability to construct inequality measures and the ability to formulate possible laws that would otherwise not be possible to detect however there are problems associated with the use of a parametric lorenz curve such as the choice of a suitable distribution the problem is compounded by the fact that income data are often grouped and have an open ended highest income category making it difficult to obtain accurate estimates one advantage of using professional sports data is the fact that the salary is available per individual and is not grouped consequently an actual number is available for the highest income this study analyzes payroll inequality in a professional sport by team that is for each year we calculate a measure of inequality for each mlb team and consider the characteristic differences in within team payroll distributions our study is not however the first to consider income inequality within professional team sports depken 2000 and jewell and molina 2004 find that mlb teams with greater wage disparity have fewer wins furthermore sommers 1998 finds a negative relationship between team success and within team payroll inequality using national hockey league data

country effects on information seeking in global electronic networks we examine the existence of country effects on information seeking in response to market volatility and explore the institutional factors underlying these effects the empirical setting is the use of an electronic inter bank network over twelve months by 3 266 banks located in twenty five countries we find significant differences across countries in banks information seeking behavior in response to market volatility influenced both by differences in national industry arrangements and by national culture however national industry arrangements and national culture influence banks information seeking in distinct ways

external recruitment and intrafirm mobility i introduction competition for promotion has a very strong effect on employees work incentive in the stereotypic internal labor market described in doeringer and piore 1985 there are only a limited number of ports of entry into a hierarchical firm or organization so that existing employees are insulated to a large extent from external competition in their climb up the corporate ladder however lazear 1992 and baker et al 1994a 1994b find extensive external recruitments at almost all grade levels in their studies of different u s corporations if the boundary between internal and external labor markets is not impervious then the choice between external recruitment and internal promotion in filling openings becomes an important personnel decision with interesting implications on incentives opening up the competition to external applicants discourages collusion among candidates as well as offers a quick channel for absorbing external talents however it also reduces the probability of promotion for existing workers and thus their incentive to exert with adverse effect on the firm s profit in chan 1996 i suggest that work incentive for the internal promotion candidates can be maintained if external competitors are handicapped in the contest such favoritism for existing employees implies that senior positions tend to be filled internally more often than not and that a worker is recruited from the outside only if he or she demonstrates a significant margin of superiority over the internal candidates this is consistent with the observations that external recruits account for only about 15 to 20 of all appointments to top management positions see denis and denis 1995 warner et al 1988 and that roughly the same percentage of chief executive officers ceos of large u s firms are outsiders see agrawal et al 2002 chan 1996 parrino 1997 the handicapping hypothesis of promotion suggests a dilemma in personnel decisions although handicapping external applicants provides incentive for existing employees it also increases the chance of inferior internal contestants being promoted to senior positions where sorting of workers by ability into different particularly senior positions is important efficiency within the organization is compromised this tension between sorting and maintaining work incentive is explored in tsoulouhas et al 2001 unfortunately the gain in realism with the incorporation of sorting is offset by ambiguity in most of the results the ability of the firm to precommit to future compensation the relative abilities of the internal and external contestants the cost of work effort and commonality within the firm and within the industry all have a role in determining the direction and magnitude of the handicap with different combinations of these factors resulting in very different outcomes whether one starts with the chan model or the tsoulouhas model empirical evidence is important to establish the significance of the competitive handicap against external candidates there has been no shortage of empirical investigations of the incentive effects of tournaments most follow one of two different analytic approaches one approach uses cross sectional or nonpanel data such as data on executive salary across firms gibbons and murphy 1990 leonard 1990 main et al 1993 or data from professional sports tournaments see for example ehrenberg 1990 few of these studies address the distinction between internal or external contestants agrawal et al 2002 is an exception it tests implications of the handicapping hypothesis derived in tsoulouhas et al 2001 by analyzing more than 1 000 ceo successions in large u s firms from 1974 to 1995 even though some of the results are also consistent with a traditional human capital interpretation and the key hypothesis can be derived from the tsoulouhas model only under certain conditions they offer some support for the existence and relevance of the competitive handicap against external contestants

can losing lead to winning individuals groups and teams who are behind their opponents in competition tend to be more likely to lose in contrast we show that through increasing motivation being slightly behind can actually increase success analysis of more than 18 000 professional basketball games illustrates that being slightly behind at halftime leads to a discontinuous increase in winning percentage teams behind by a point at halftime for example actually win more often than teams ahead by one or approximately six percentage points more often than expected this psychological effect is roughly half the size of the proverbial home team advantage analysis of more than 45 000 collegiate basketball games finds consistent though smaller results experiments corroborate the field data and generalize their findings providing direct causal evidence that being slightly behind increases effort and casting doubt on alternative explanations for the results taken together these findings illustrate that losing can sometimes lead to winning this paper was accepted by peter wakker decision analysis

designing optimal sales contests a theoretical perspective sales contests are commonly used by firms as a short term motivational device to increase salespeople s efforts conceptually sales contests and piece rate schemes such as salary commission or quotas differ in that in sales contests payment to salespeople is based on relative rather than absolute sales levels using the agency theoretic framework where the firm is risk neutral and the salespeople are risk averse we examine how a firm should design an optimal contest to maximize its profit through stimulating salespeople s efforts specifically we investigate how many salespeople should be given awards and how the reward should be allocated between the winners three commonly used sales contest formats are studied in the first format termed as rank order tournament there are many winners and the amount of reward is based on relative rank achieved with larger amounts awarded to higher ranks we also examine two special cases of rank ordered tournament a multiple winners format where the reward is shared equally and a winner take all format where a single winner gets the entire reward we model salespeople s behavior by considering utility of the reward from achieving one of the winning ranks in the contest and assessing incremental chances of winning by exerting more effort the analysis was done for two situations based on whether the total reward is large enough for salespeople to participate in the effort maximizing sales contest or not the analysis shows that factors impacting contest design include the salespeople s degree of risk aversion number of salespeople competing in the contest and degree of sales uncertainty which reflects strength of the sales effort relationship the results show that salespeople exert lower effort when there are larger numbers of participants or when sales uncertainty is high we find that the rank order tournament is superior to the multiple winners contest format in a multiple winners format the salesperson whose performance is just sufficient to win is better off than any of the other winners as he exerts the least effort to win but obtains as high a reward as any other winners specific recommendations on contest designs are obtained assuming that sales follow either a logistic or uniform distribution assuming that sales outcome is logistically distributed and the contest budget is high enough to ensure participation our analysis shows that the total number of winners in a sales contest should not exceed half the number of the contestants this result is due to the symmetric nature of the logistic distribution our analysis also indicates that the total number of winners should be increased and the spread decreased when salespeople are more risk averse when salespeople are more risk averse their marginal values for higher rewards become smaller the spread should increase with ranks when rate of risk tolerance is high and decrease with ranks when the rate of risk tolerance is lower in the extreme case of risk neutral salespeople the optimal design is a winner take all format we also conclude that since the probability of winning the contest decreases with number of contestants the optimal number of winners should increase and interrank spread decrease when there are a larger number of participants if the firm does not allocate a large enough budget for salespeople to participate in the effort maximizing sales contest then the firm may increase the number of winners to more than half the sales force increasing the number of winners and decreasing the spread are required to encourage the salespeople to participate particularly when there are many participants who are risk averse a counterintuitive result is that the number of winners should be reduced and the spread increased when sales uncertainty is high increasing sales uncertainty leads to lower equilibrium effort levels while keeping the expected utility of the contest rewards the same therefore increased uncertainty results in higher participation incentive the firm should thus relatively reduce the number of winners in high uncertainty situations under the assumption of uniformly distributed sales the recommendation is that a winner take all contest induces maximum efforts regardless of the level of risk aversion number of players or the degree of uncertainty when the winner take all format does not meet the participation constraint our analysis recommends offering a big reward to the top salesperson and a small reward to many other sales people the small reward should be just sufficient to ensure that all salespeople participate consistent with logistic distribution the spread should decrease when salespeople are more risk averse or there are more players but should increase when sales uncertainty is larger these results highlight that some of the conclusions drawn may be sensitive to distributional assumptions

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

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

career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

the assessment the economics of sport the study of sports economics has expanded rapidly in recent years in response to significantly increased demand for sport itself for economic analysis relevant to commercial litigation in sport for lively teaching material in schools and universities and for research into the incentive properties of sporting contests while much of the literature has focused on the issue of competitive balance and how to achieve it there have still been relatively few studies that apply the lessons of the economic theory of contests to the analysis of sports there remain huge opportunities both to develop our theoretical understanding of incentive mechanisms in sport and to conduct empirical research in the operation of incentives in sporting contests copyright 2003 oxford university press

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

trade the pollution haven hypothesis and the environmental kuznets curve examining the linkages abstract this paper examines the extent to which the ekc inverted u relationship can be explained by trade and specifically the migration or displacement of dirty industries from the developed regions to the developing regions the pollution haven hypothesis phh using detailed data on north south trade flows for pollution intensive products the evidence for the phh is assessed emissions of 10 air and water pollutants are then estimated controlling for trade openness structural change and dirty north south trade flows evidence of pollution haven effects is found although such effects do not appear to be widespread and appear to be relatively small compared to the roles played other explanatory variables

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

suspense dynamic incentives in sports contests in a dynamic model of sports competition if spectators care only about contestants efforts incentive schemes depending linearly on the final score difference dominate rank order schemes based only on who wins if spectators also care about suspense defined as valuing more contestants efforts when the game is closer rank order schemes can dominate linear score difference schemes and this will be the case when the demand for suspense is sufficiently high under additional assumptions we show that the optimal rank order scheme dominates a broad class of incentive schemes sport contestants can earn substantial financial prizes total prize money at wimble don topped 10 million for the first time in 2005 the professional golf association has distributed approximately 250 million in prize money across 48 events in the pga tour even in less professional sports prize money plays an important role nearly 21 million in prize money was awarded in international track and field competitions in 2004 interestingly prize money is typically allocated on the basis of who wins and who loses more informative measures of performance such as score differences rarely matter even though they are readily available when there are several contestants in a sporting event rewards depend on who wins the most games round robin tourna ment or on the sequence of games won elimination tournament total scores and other performance measures matter only in terms of determining who the winner is not how much the winner gets although for superstar athletes prize money pales in comparison with income from sponsorship deals only about 6 million of tiger woods income of close to 90 million in 2004 was prize money sponsorship money can depend on factors such as charisma and star power other than athletic perform ance so prize money is still the main provider of incentives for efforts in a given sports event likewise in recent years contracts for players in some team sports are loaded with incentive clauses that often take on a strong piece rate flavour e g salaries for batters depending on the batting average in baseball but financial incentives for team efforts remain largely independent of relative performance measures such as score differences why do win lose rank order incentives dominate in the design of financial incentives in sports especially in individual sports the literature on optimal design of rank order tournaments that began with lazear and rosen 1981 explains how tournaments provide incentives for efforts however the literature has not shed much light on when rank order incentive schemes are preferred to schemes based on other relative performance measures particularly when the agents are risk neutral prendergast 1999 pp 36 7 reviews several reasons for using tournaments but it remains unclear why prizes in sporting events depend only on rank order of scores and not on scores themselves holmstrom 1982 casts doubt this article was originally titled suspense it was first presented at the memorial conference for sherwin

forest dependence and participation in cpr management empirical evidence from forest co management in malawi abstract we develop an endogenous sample selection model to investigate how forest dependence influences a household s decision to participate in forest co management program using data from chimaliro and liwonde forest reserves in malawi we find that where forests primarily have a gap filling or safety net role in chimaliro high forest dependency induces higher rates of participation however with more commercial forest uses and a more heterogeneous social context as in liwonde high forest dependency reduces the incentives for participation the findings point to the need to design parallel interventions alongside the forest co management program in order to provide supplementary income sources to participants and increase the incentives for participation

human resource management policies and productivity new evidence from an econometric case study first we distinguish various approaches used by economists to assess the impact of human resource management practices on productivity and then we briefly review and illustrate studies that represent different approaches in the main part of the paper we illustrate the econometric case study method by using new data to analyse a case from retail trade and by emulating an approach used in an earlier study consistent with theory we find that when employees have opportunities to participate to receive appropriate information and pertinent rewards a one standard deviation increase of the first principal component score would increase productivity by 1 our findings imply that there are benefits to innovative work practices even in settings where employees do simple tasks and employees are relatively low skilled since our findings are similar to those contained in a previous study our results also indicate the value of replication studies

do corporate codes of ethics reflect national character evidence from europe and the united states this paper analyses the usage and contents of corporate codes of ethics the results from a sample of 600 large european companies are contrasted with findings reported for similar u s firms the comparison reveals that significantly fewer european than u s firms adopted codes of ethics in europe the large majority of codes have been introduced only very recently and there are indications that codes made their way into europe via subsidiaries of u s firms however there are striking differences in content between u s and european codes of ethics pointing to the existence of a distinctly european approach to codifying ethics

external recruitment versus internal promotion this article analyzes the choice between internal promotion and external recruitment within the framework of an economic contest opening up the competition for a position to external candidates re

non mandatory approaches to environmental protection the approach to environmental protection has been evolving from a regulation driven adversarial government push approach to a more proactive approach involving voluntary and often business led initiatives to self regulate their environmental performance this has been accompanied by increasing provision of environmental information about firms and products to enlist market forces and communities in creating a demand for corporate environmental self regulation by signaling their preferences for environmentally friendly firms this paper provides an overview of the non mandatory approaches being used for environmental protection and surveys the existing theoretical literature analyzing the economic efficiency of such approaches relative to mandatory approaches it also discusses empirical findings on the factors motivating self regulation by firms and its implications for their economic and environmental performance it examines the existing evidence on the extent to which information disclosure is effective in generating pressures from investors and communities on firms to improve their environmental performance

the thrill of victory measuring the incentive to win there is ample evidence that incentive pay structures such as tournaments result in increased performance is this due to selection or increased individual effort and is any increased individual effort caused by pecuniary incentives or merely thirst for the thrill of victory tov prior literature has not separated the different effects we look at performance in horse and dog racing and find that only horses controlled by jockeys during the race exhibit performance corresponding to pecuniary incentives while both respond to selection and tov the results show that pay structures do matter

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

promotions and incentives in partnerships evidence from major u s law firms this paper develops a model of promotions in partnerships and estimates the model using cross sectional data on major u s law firms promotions to partner screen associates for firm specific skills and they generate tournament incentives among associates competing for promotions the key parameters of the model are estimated by imposing the equilibrium restriction that firms offer equal utility to incoming associates the incentive component of compensation is found to be statistically significant and a nested model without promotion

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

industry self regulation without sanctions the chemical industry s responsible care program industry self regulation the voluntary association of firms to control their collective action has been proposed as a complement to government regulation proponents argue that the establishment of

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

multinationality and corporate ethics codes of conduct in the sporting goods industry the international operations of firms have substantial impact on the formulation and implementation of business ethical principles such as codes of conduct the international sporting goods industry has been a pioneer in setting up codes and thus provides much relevant experience different sourcing strategies degrees of multinationality and national backgrounds affect the contents of codes moreover international non governmental organizations prove equally effective in triggering sophisticated codes

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

a note on the parametric three step estimator in structural labor supply models abstract in the estimation of structural models of labor supply simultaneous equation systems are frequently used often these systems are estimated by three step methods that are based on the ideas developed by heckman econometrica 47 1979 153 161 although for the first two steps the statistical theory for the resulting estimators is well established the same cannot be said for the third step as a consequence most of those empirical inferences rely simply in incorrect statistics in this article we give the theory and a brief example for a fully parametric three step estimator

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

a new look at incentive effects and golf tournaments abstract this paper uses data from the 1992 professional golf association tour to analyze the incentive effects offered by tournaments the results suggest that the level of the total prize money has an insignificant effect on the total score output of the players workers this conclusion contradicts the findings of an earlier paper by ehrenberg and bognanno journal of political economy 1990 98 1307 1324

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

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

the impact of pressure on performance evidence from the pga tour abstract do large rewards lead to psychological pressure causing underperformance previous studies have tested this choking phenomenon using the world of sports but such studies often lack an explicit link between performance and reward this study utilizes a large pga tour dataset to more directly analyze the effect of pressure on individual performance by calculating the potential change in earnings from making or missing a putt on the final hole of a tournament we find that as the amount of money riding on a shot increases the likelihood that shot is made is significantly reduced

of tournaments and temptations an analysis of managerial incentives in the mutual fund industry we test the hypothesis that when their compensation is linked to relative performance managers of investment portfolios likely to end up as losers will manipulate fund risk differently than those managing portfolios likely to be winners an empirical investigation of the performance of 334 growth oriented mutual funds during 1976 to 1991 demonstrates that mid year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid year winners furthermore we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time

playing for keeps pay and performance in the nba i introduction a basic insight of agency theory is that properly designed incentive contracts can align the interests of agents with those of the principal and recent empirical work shows that workers do indeed respond to financial incentives 1 contractual incentives however are not the only force motivating workers workers also have incentives to vary effort at different points of their contract cycle to increase effort just before a new contract is signed to lock in a more lucrative deal and then reduce it after a multi year contract is secured these types of contract related incentives create clear moral hazard problems but have received little empirical attention the motivating hypothesis in this paper is that imperfect information and multi year contracts create an implicit incentive for workers to strategically alter effort over the contract cycle in the year prior to signing the contract their contract year workers may exert above average effort to convince employers that they are high quality and thus raise long term compensation once the contract is signed however workers may exert less effort because wages are effectively independent of contemporaneous performance an empirical difficulty is that this moral hazard may be obscured by two factors a selection effect may lead only high quality workers to receive contracts and career concerns may provide additional incentives and dampen the post contract decline 2 this paper employs a unique dataset for professional basketball players in the national basketball association nba from 1988 to 2002 to examine the contract related incentive effects the data include contract information year signed length of contract and value of contract for every active player in 2000 and performance measures points scored rebounds assists etc throughout each player s career contract related incentive effects are estimated from changes in individual performance over the contract cycle if performance systematically improves just before signing a new contract and falls afterward some of the fluctuation is likely due to contract related incentives i also examine the traditional link between pay and past performance which is necessary for these types of incentives to be relevant the critical advantage of this data is the detailed information on individual performance individual contract status and individual pay 3 in contrast previous work on individual incentives for example lazear 2000 paarsch and shearer 2000 and shearer 2004 studied changes infirmwide compensation plans while the empirical literature on executive pay and performance for example murphy 1985 1986 jensen and murphy 1990 gibbons and murphy 1992 kaplan 1994 and hall and liebman 1998 typically examined the link between individual pay and firm performance the individual level data constructed here have the critical variation across individuals which is needed to identify the impact of these contract related incentive effects the empirical work begins with a test of the link between pay and performance which is necessary for contract related incentives to be operational not surprisingly better performers in the nba are rewarded with higher salaries and longer contracts more relevant to the incentive issue players are strongly rewarded for improvements in performance in their contract year a one point increase in a player s scoring average for example is associated with an annual salary increase of over 300 000 this link provides the crucial motivation for the hypothesis that players will exert additional effort in their contract year to lock in the better contracts that they expect to follow the data then provide strong evidence of contract related incentive effects as overall performance does in fact improve relative to a player s long run average in the contract year and then declines after a long run contract is signed

globalization and the environment determinants of firm self regulation in china critics assert that globalization is detrimental to the environment because it encourages location of polluting industries in countries with low environmental regulations we suggest that globalization might also have positive environmental effects because global ties increase self regulation pressures on firms in low regulation countries using survey data from firms in china we find that multinational ownership multinational customers and exports to developed countries increase self regulation of environmental performance

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

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

the agent agents problem payment by relative output this paper begins an investigation into the incentive problems at a firm when the effort of the employer and the employees combines to determine final output the major conclusion is that optimal reward functions in this circumstance will in general value the performance of a worker relative to that of his peers the paper thus joins a growing literature associated with the work of lazear and rosen on rank order tournaments

cognitive performance in competitive environments evidence from a natural experiment competitive situations that involve cognitive performance are widespread in labor markets schools and organizations including test taking competition for promotion in firms and others this paper studies cognitive performance in a high stakes competitive environment the analysis takes advantage of a natural experiment that randomly allocates different emotional states across professional subjects competing in a cognitive task the setting is a chess match where two players play an even number of chess games against each other alternating the color of the pieces white pieces confer an advantage for winning a chess game and who starts the match with these pieces is randomly decided the theoretical analysis shows that in this setting there is no rational reason why winning frequencies should be better than 50 50 in favor of the player drawing the white pieces in the first game yet we find that observed frequencies are about 60 40 differences in performance are also stronger when the competing subjects are more similar in cognitive skills we conclude that the evidence is consistent with the hypothesis that psychological elements affect cognitive performance in the face of experience competition and high stakes