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

rank order contracts for a principal with many agents for a principal with many agents rank order contracts remain incentive compatible even when information about agents performance is known only to the principal because the total payment from the principal to all agents taken together is independent of the outcome that occurs under wider conditions than those considered previously in the literature there is shown to exist a rank order contract equivalent exactly or approximately to any nonlinear piece rate contract under those conditions therefore results that depend on the unenforceability of piece rates under such asymmetric information disappear if rank order contracts can be used in principal agent models compensation paid to agents is based on their outputs because their inputs are not public information in this context information is public if it is verifiable in court so that a contract contingent on it is legally enforceable rank order contracts also called tournaments and contests make each agent s compensation a function solely of the ranking of his output relative to the outputs of other agents in contrast individual piece rate contracts make each agent s compensation a function only of his own output lazear and rosen 1981 green and stokey 1983 and nalebuff and stiglitz 1983 all have results comparing the two when agents actions are not observed by the principal but only for the case in which the principal is risk neutral and the utility function of agents additively separable in income and action the main purpose of the present paper is to show that for the case of a continuum of agents these two kinds of contract are in fact formally equivalent or in some cases approximately equivalent under somewhat more general conditions than those considered so far in the

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

blame game politics in a coalition government abstract delays in the adoption of reforms is an important question in political economics this paper explores this issue in the context of a representative democracy where the government is a coalition and citizens observe neither the decision making process nor politicians preferences for a reform we show that a coalition member who favors a reform may nonetheless choose to veto its adoption thus delaying it until after the next election and let his coalition partners share the blame for the non adoption we refer to this strategy as blame game politics we then identify three reasons for a politician to play the blame game one is to make an issue salient in the next election a second reason is to avoid a split in his electorate which is accomplished by hiding his stance on an issue a third reason is to enhance bargaining power during the formation of the next government

managerial bonuses and subordinate mistreatment abstract can performance bonuses increase the likelihood that managers coerce their subordinates into exerting high levels of effort when doing so promotes neither efficiency nor equity we consider a laboratory setting in which managers compete to obtain a large bonus at the end of the experiment and the probability of obtaining it depends partly on the effort exerted by the subordinates we find that managers are more than twice as likely to punish subordinates exerting fair levels of effort if they compete for individual bonuses than when there are no bonuses this is not the case when they compete for pooled bonuses giving managers discretionary power over how to share them with their subordinates as most subordinates willingly exert maximal effort a model in which individuals are assumed to care about equity captures subordinates behavior well managers willingness to coerce subordinates into exerting unfairly high levels of effort on the other hand cannot be readily accounted for by any of the existing models of social preferences

can economic incentives encourage actual reductions in pesticide use and environmental spillovers chemical pesticides constitute an important input in crop production but their indiscriminate use can impact negatively agricultural productivity human health and the environment recently attention is focused on the use of economic incentives to reduce pesticide use and its related indirect effects the aim of this work is to assess the effectiveness of different economic instruments such as taxes and levies in encouraging farmers to decrease pesticide use and their environmental spillovers a policy simulation model is employed using data from dutch cash crop producers including two pesticide categories that differ in terms of toxicity and pesticides environmental spillovers four different instruments were selected for evaluation pesticide taxes price penalties on pesticides environmental spillovers subsidies and quotas the results of the study indicate that even high taxes and penalties would result in a small decrease in pesticide use and environmental spillovers taxes that differentiate according to toxicity do not lead to substitution of high with low toxicity pesticides subsidies on low toxicity products are not able to affect the use of high toxicity products pesticide quotas are more effective in reducing pesticide use and environmental spillovers

lying and reciprocity abstract we extend the literature on the determinants of lying to the impact of reciprocity in strategic interactions we study a theoretical model with reciprocity by assuming that a player s degree of altruism depends on her perception of the other player s altruism towards herself specifically we consider a sequential two player contest and vary the second mover s degree of information on the first movers lying behavior this yields predictions on the second mover s behavior which we study in a largescale online experiment and the laboratory surprisingly the second mover s lying propensity does not depend on her information on the first mover s lying behavior to investigate whether this is specific to lying we consider an additional treatment with the same payoff structure where subjects can increase their chances of winning by simple statements without lying as we do find evidence for reciprocity there the lack of reciprocity cannot solely be attributed to the contest structure

an economic analysis of the possibility of reducing pesticides in french field crops the paper aims to study the effects of reducing pesticide use by farmers in the arable sector in france and the feasibility of a policy target of reducing pesticide use by half the originality of the approach is to combine statistical data and expert knowledge to describe low input alternative techniques at the national level these data are used in a mathematical programming model to simulate the effect on land use production and farmers income of achieving different levels of pesticide reduction the results show that reducing pesticide use by 30 could be possible without reducing farmers income we also estimate the levels of tax on pesticides necessary to achieve different levels of reduction of pesticide use and the effect of an incentive mechanism combining a pesticide tax with subsidies for low input techniques

multiperson tournaments an experimental examination modern hierarchical organizations like corporations must motivate agents to work hard given their pyramid structure it is not surprising that one commonly used motivator is the promotion tournament in such tournaments agents compete to advance to positions at higher organizational levels though these tournaments are common little research has empirically looked at the interface of organizational structure and tournament design this paper aims to take a step in filling this void by comparing the performance of various tournament designs using controlled laboratory techniques

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

are workers paid their marginal products status is like coase s social costs a reciprocal phenomenon given that one person s gain in status can occur only at the expense of a loss in status for others and that workers are free to choose their coworkers it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products the purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm s internal wage structure the paper is organized as follows section i briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers section ii then confronts the predictions of section i by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed section ii also examines the relationship between wages and productivity for a sample of university professors an occupation in which individual productivity differences are for a variety of obvious reasons relatively more difficult to measure all of the evidence examined is consistent with the hypothesis that within firms wage rates vary substantially less than do individual productivity values section iii discusses additional observations and evidence that bear on this same hypothesis it suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform section iv concludes by considering the claim that egalitarian internal wage structures arise because of equity considerations it argues that the concept of equity appears very closely linked to the concept of status and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions

tournaments and office politics evidence from a real effort experiment in many environments tournaments can elicit more effort from workers except perhaps when workers can sabotage each other because it is hard to separate effort ability and output in many real workplace settings the empirical evidence on the incentive effect of tournaments is thin there is even less evidence on the impact of sabotage because real world acts of sabotage are often subtle manifestations of subjective peer evaluation or office politics we discuss a real effort experiment in which effort quality adjusted output and office politics are compared under piece rates and tournaments our results suggest that tournaments increase effort only in the absence of office politics competitors are more likely to sabotage each other in tournaments and as a result workers actually provide less effort simply because they expect to be the victims of sabotage adjusting output for quality with the rating of an independent auditor shrinks the incentive effect of the tournament even further since output tends to become more slipshod

costly buyer search in laboratory markets with seller advertising in this experiment sellers simultaneously choose prices and advertising strategies buyers either purchase at an advertised price or search sequentially for other prices in the unique symmetric equilibrium sellers charge a high unadvertised price or advertise a price chosen from a lower interval increases in search or advertising costs raise equilibrium prices and affect equilibrium advertising intensity empirical results are consistent with most comparative static predictions sellers however price much lower and advertise more intensely than predicted consequently market outcomes more closely resemble a perfect information bertrand like equilibrium than the imperfect information mixed strategy equilibrium with significant seller market power

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

incentives in organizations n 1975 steven kerr published on the folly of rewarding a while hoping for b the argument was simple you get what you pay for kerr distilled this unifying theme from a disparate set of examples involving politicians soldiers doctors orphanage directors professors and students as well as manufacturing and clerical employees and even human resource managers from these examples kerr pp 77980 concluded that two main causes of distorted incentives are fascination with an objective criterion where individuals seek to establish simple quantifiable standards against which to measure and reward performance and overemphasis on highly visible behaviors when some parts of the task are highly visible while others are not it took agency theory 15 years to express kerr s title not to mention to evaluate or extend his conclusions during this period agency theory was obsessed with the tradeoff between incentives and insurance even though clear eyed observations like kerr s about the design and performance of real incentive contracts suggested that several other issues are at least as important fortunately recent work has brought agency theory not only to kerr s position but beyond in this paper i summarize four new strands in agency theory that help me think about incentives in real organizations as a point of departure i begin with a quick sketch of the classic agency model i then discuss static models of objective performance measurement that sharpen kerr s argument repeated game models of subjective performance assessments incentives for skill development rather than simply for effort and incentive contracts between versus within organizations i con

competition between and within teams abstract we consider the effect of team size the observability of effort and the competitiveness of the team s environment in determining team members allocations of effort between team oriented and selfish efforts

an experimental study of price dispersion in an optimal search model with advertising abstract this paper reports a laboratory experiment to study pricing and advertising behavior with costly buyer search sellers simultaneously post prices and may incur a cost to advertise this price in the unique symmetric equilibrium sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices increases in search or advertising costs raise equilibrium prices and equilibrium advertising intensity decreases with lower search costs and higher advertising costs our experimental results support these comparative static predictions and sellers also post high unadvertised prices as predicted in all treatments however sellers advertise more intensely than in equilibrium

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

organization design proximity and productivity responses to upward social comparison we investigate the mechanisms that shape social comparison in organizations and generate social comparison costs in particular we focus on heterogeneity in the strength and type of incentives and argue that from an efficient design perspective such variance in rewards is a double edged sword while the sorting and incentive effects that result may increase productivity the social comparison processes that arise may dampen it we posit that the mechanisms underlying these behavioral costs are shaped not only by the magnitude of reward variance but by the formal and informal design elements shaping the distance of advantaged peers in other words the more proximate socially structurally or geographically are those to whom one socially compares the larger the behavioral response empirically we use an unanticipated event during which outlets of a bank previously operating under essentially homogenous incentives were assigned to tournament groups with differing ex ante probabilities of winning a

incentives and wage rigidity with the growth of the literature on incentive compensation has come the belief by some that incentive pay may be less rigid than pay that is not designed to effect incentives some have gone so far as to argue that this may explain differences in unemployment rates across countries it is shown that there is no direct link between incentives and wage rigidity many compensation schemes that provide incentives have the reverse effect that is they tend to make wages more rigid than would be the case were incentives not an issue atall this paper explores the relationship between wage rigidity and the provision of incentives in a variety of circumstances this abstract was borrowed from another version of this item

a laboratory study of advertising and price competition abstract we use a laboratory experiment to study advertising and pricing behavior in a market where consumers differ in price sensitivity equilibrium in this market entails variation in the number of firms advertising and price dispersion in advertised prices we vary the cost to advertise as well as varying the number of competing firms theory predicts that advertising costs act as a facilitating device higher costs increase firm profits at the expense of consumers we find that higher advertising costs decrease demand for advertising and raise advertised prices as predicted further this comes at the expense of consumers however advertising strategies are more aggressive than theory predicts with the result that firm profits do not increase

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

multicrop production models with multinomial logit acreage shares the main objective of this paper is to show that the multinomial logit mnl framework can be used for deriving simple acreage share models more specifically we show that mnl acreage choice models can be defined as parts of consistent multicrop models when coupled with suitably designed crop production models e g a specific parameterization of the standard quadratic yield function the parameters of these multicrop models are easily interpreted and estimated although mnl acreage choice models are usually derived by aggregating crop choices defined at the plot level we show that these models can also be derived by considering a profit maximisation problem at the farm level this provides a simple theoretical background for the standard mnl acreage share model as well as for simple extensions of these models the nested mnl acreage share models an empirical application on french farm level data over the period 1996 2007 investigates the empirical performances of the multicrop econometric models based on the proposed mnl framework for modelling acreage choices

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

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

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

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

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

smart policies to reduce pesticide use and avoid income trade offs an agent based model applied to thai agriculture abstract policy makers in developing countries need better evidence of how changes in pesticide regulation would affect pesticide reduction and farm incomes but there are very few modeling tools that can provide such information the present study develops a new model based on mathematical programming based multi agent system mpmas a simulation software that allows assessing ex ante the impact of alternative pesticide use reduction strategies including combinations of pesticide taxes the introduction of integrated pest management a price premium for safe agricultural produce and subsidies for biopesticides the model is parameterized with farm and plot level data from northern of thailand where the adoption of high value cash crops has been accompanied by a rapid increase in synthetic pesticide use simulation results suggest that a pesticide tax alone has little effect on synthetic pesticide use a smart policy package combining integrated pest management a progressive pesticide tax based on toxicity and subsidies lowering the price of biopesticides can reduce average use of hazardous pesticides by 34 over current levels without adverse effects on the average farm income

competition as a savings incentive a field experiment at a homeless shelter abstract this paper describes a randomized field experiment testing the impact of a savings competition on the behavior of homeless individuals staying at a transitional shelter when monetary prizes were offered for achieving the highest saving rates within a particular month average savings increased by 80 a 30 increase in savings rate while income and attendance at case management meetings remained unchanged however repeating the competition in the following month had no effect because responsive savers selected out of the shelter after the first month in summary while a savings competition can increase savings in the short run its effect may be limited to the intensive margin and may diminish with repetition

lying to level the playing field why people may dishonestly help or hurt others to create equity unethical and dishonest behavior has increasingly attracted the attention of scholars from various disciplines recent work has begun to focus on a previous overlooked factor predicting dishonest behavior the beneficiary or victim of dishonest acts in two laboratory experiments we manipulate the level of resources allocated to our participants their wealth and investigate whether perceived inequity from wealth that is randomly or subjectively assigned leads individuals to cross ethical boundaries through helping or hurting others the results show that dishonest behavior is influenced by positive and negative inequity that motivates helping and hurting acts furthermore a third experiment shows that people tend to discount the wrongness of crossing ethical boundaries to hurt or help others when the action restores equity

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

cheating to win dishonesty and the intensity of competition we argue that the intensity of competition within a group or organization can have an important influence on whether or not people cheat to make this point we first work through a simple model of strategic misreporting in the workplace for low and high levels of competition we show that in equilibrium few are predicted to misreport it is for medium levels of competition that misreporting is predicted to be highest we test this prediction experimentally and find good support for it this finding has implications for the design of incentive structures within groups and organizations

the willingness to adopt agro ecological innovations application of choice modelling to caribbean banana planters this paper proposes an ex ante evaluation of the willingness to adopt agro ecological innovations aimed at reducing pesticide use for banana production in the french west indies four innovative systems including intercropping improved fallow and new pest tolerant varieties are proposed to a sample of 607 planters with innovation and policy attributes calibrated from a bio economic farm model the model interacts technological and economic innovation attributes with farmer individual factors and allows for a dual source of unobserved heterogeneity we estimate a system of random coefficient logit models to obtain marginal values of innovation traits that can be useful for targeting farm types with appropriate innovations and designing policies for securing agricultural revenue

entry into winner take all and proportional prize contests an experimental study this experiment compares the performance of two contest designs a standard winner take all tournament with a single fixed prize and a novel proportional payment design in which that same prize is divided among contestants by their share of total achievement we find that proportional prizes elicit more entry and more total achievement than the winner take all tournament the proportional prize contest performs better by limiting the degree to which heterogeneity among contestants discourages weaker entrants without altering the performance of stronger entrants these findings could inform the design of contests for technological and other improvements which are widely used by governments and philanthropic donors to elicit more effort on targeted economic and technological development activities

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

spite and preemptive retaliation after tournaments abstract we investigated money burning after tournaments first we show that substantial money burning was triggered if participants perceived a situation as competitive second we investigated to which extent aggression between former contestants was motivated by preemptive retaliation or spite to disentangle both motives we introduced a credible and visible self binding signal contrary to previous studies we found that aggression against a defenceless subject played an important role preemptive retaliation proved to be another dominant motive we conclude that voluntary self binding signals may have the potential to mitigate but not eliminate antisocial behavior after a competition because it seems to be driven by spite to a large extent our results help us to better understand and eventually mitigate destructive behavior in work environments

managerial objectives capital structure and the provision of worker incentives worker incentive schemes are invariably assumed to be administered by an owner entrepreneur who has an incentive to understate worker performance after the event while tournaments can overcome this problem they discourage cooperation between workers we show that a professional manager concerned with equality between workers and with avoiding bankruptcy rather than maximizing shareholder wealth will conduct a tournament that preserves individual effort incentives while promoting cooperation between workers the theory predicts lower debt levels and more compressed pay scales as cooperation becomes more important in the limit this becomes a group bonus scheme supported by blue chip debt

personnel economics past lessons and future directions presidential address to the society of labor economists san francisco may 1 1998 in 1987 the journal of labor economics published an issue on the economics of personnel since then personnel economics defined as the application of labor economics principles to business issues has become a major part of labor economics now accounting for a substantial proportion of papers in this and other journals much of the work in personnel economics has been theoretical in large part because the data needed to test these theories have not been available in recent years a number of firm based data sets have surfaced that allow personnel economics to be tested using two such data sets i give support to the implications of theories that relate to life cycle incentives tournaments piecework incentives pay compression and peer pressure i conclude that personnel economics is real it is far more than a set of clever theories it has relevance to the real world additionally firm based data make asking and answering new kinds of questions feasible the value of research in this area is h

david vs goliath an analysis of asymmetric mixed strategy games and experimental evidence mixed strategies are widely used to model strategic situations in diverse fields such as economics marketing political science and biology however some of the implications of asymmetric mixed strategy solutions are counterintuitive we develop a stylized model of patent race to examine some of these implications in our model two firms compete to develop a product and obtain a patent however one firm values the patent more because of its market advantages such as brand reputation and distribution network contrary to some intuition we find that the firm that values the patent less is likely to invest more aggressively in developing the product and will also win the patent more often we argue that the reason for these counterintuitive results is inherent in the very concept of mixed strategy solution in a laboratory test we examine whether subjects behavior conforms to the equilibrium predictions we find that the aggregate behavior of our subjects is consistent with the game theoretic predictions with the help of the experience weighted attraction ewa learning model proposed by camerer and ho 1999 we show that adaptive learning can account for the investment behavior of our subjects we find that the ewa learning model tracks the investment decisions of our subjects well whether we hold out trials or an entire group of subjects

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

asymmetric employer information promotions and the wage policy of firms abstract this paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information building on the seminal work by waldman 1984a and milgrom and oster 1987 we first present a model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions using experimental labor markets we find evidence consistent with asymmetric employer information being a causal factor for both inefficient promotions and large wage increases upon promotion furthermore we analyze the effect of asymmetric employer information on profits and turnover

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

accounting for heterogeneity in multicrop micro econometric models implications for variable input demand modeling this article aims to show that if the farm sample under consideration is characterized by significant heterogeneity recovering output specific input uses or modeling farm level input uses may be more complicated than previously recognized the article theoretically investigates the problems implied by farm heterogeneity in input allocation equations and multicrop econometric models proposes an empirically tractable solution for overcoming these problems and assesses the empirical relevance of the theoretically identified problems the results demonstrate that heterogeneity matters but that the revealed heterogeneity bias has a limited impact on the empirical results copyright 2012 oxford university press

union relative wage effects a survey of macro estimates this paper surveys union wage effect estimates drawn from empirical cross section wage equations fitted to macro aggregated data in 34 post 1963 studies containing such equations each estimate is the partial derivative of the dependent wage variable in logarithmic units with respect to the extent of unionism fraction unionized variable in the equation this paper shows that these estimates contain a mixture in uncertain ratio of the union nonunion wage differential or wage gap on the one hand and an extent of unionism effect on the other therefore the macro estimates should not be interpreted as wage gap estimates

equality under threat by the talented evidence from worker managed firms does workplace democracy engender greater pay equality are high ability individuals more likely to quit egalitarian organisational regimes the article revisits this long standing issue by analysing the interplay between compensation structure and quit behaviour in the distinct yet underexplored institutional setting of worker managed firms the analysis is based on novel administrative data sources which allow constructing a simple ordinal measure of the workers ability type the article s key findings are that worker managed firms have a more compressed compensation structure than conventional firms and high ability members are more likely than other members to exit

spatial competition with three firms an experimental study the paper reports the results of an experimental study of the three firm location problem we compare the subjects behavior in the experiments with the symmetric mixed strategy nash equilibrium calculated by shaked 1982 overall the findings are consistent with the equilibrium prediction however the subjects locations were significantly more dispersed than predicted by the theory three alternative explanations of this phenomenon inexperience approximate equilibrium behavior and risk aversion are suggested and evaluated for their predictive power special attention is paid to risk aversion

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

the dynamics of price dispersion or edgeworth variations abstract hypotheses on the dynamics of dispersed prices are extracted from computer simulations and theory and are tested using laboratory data as predicted in some variations of the edgeworth hypothesis the data exhibit a significant cycle relative to the unique stationary distribution the empirical distribution of posted prices has excess mass in an interval that declines until it approaches the lower boundary of the stationary distribution then jumps upward and the downward cycle resumes the amplitude of the cycle seems fairly constant over the longer experimental sessions a hybrid of gradient dynamics and logit dynamics seems to best reproduce the observed dynamics

an experimental study of price dispersion abstract we report an experiment examining a simple clearinghouse model that generates price dispersion according to this model price dispersion arises because of consumer heterogeneity some consumers are informed and simply buy from the firm offering the lowest price while the remaining consumers are captive and shop based on considerations other than price in our experiment we observe substantial and persistent price dispersion we find that as predicted an increase in the fraction of informed consumers leads to more competitive pricing for all consumers we also find as predicted that when more firms enter the market prices to informed consumers become more competitive while prices to captive customers become less competitive thus our experiment provides strong support for the model s comparative static predictions about how changes in market structure affect pricing

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

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

incentive systems in a real effort experiment in the reported experiment different payment schemes are examined on their incentive effects payments based on individual team and relative performance are compared subjects conducted computerized tasks that required substantial effort the results show that individual and team payment induced the same effort levels in team production free riding occurred but it was compensated by many subjects providing more effort than in case of individual pay effort was higher but more variable in tournaments while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others finally attitudes towards work and other workers differed strongly between conditions

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

grind or gamble an experiment on effort and spread seeking in contests we conduct a contest experiment to study if spread seeking and effort can be managed when participants can invest in increasing both the mean and the spread of an uncertain performance variable subjects are treated with different prize schemes and in accordance with theory we observe higher investments in spread for the winner take all scheme both types of investments can be controlled with a three level prize scheme however the control management is imperfect and behavior is characterized by inertia we also explore the correlation between effort and spread across subjects and find that is robustly positive

the effect of production technology on trust and reciprocity in principal agent relationships with team production we introduce differently sized teams rather than a single worker and three production technologies to an otherwise standard gift exchange environment to study experimentally whether and to what extent trust and reciprocity is affected moving to a team of workers introduces new motivations such as free riding and coordination burden that are likely to intensify with team size and the technology used by the firm we find that the positive relationship between wages and effort although affected still holds workers reduce their efforts when coordination for efficiency is more difficult using a particular production technology results also suggest that for any given technology firms react to their relevant outcome profitability and not just to workers efforts