Abstract
Several empirical studies have challenged tournament theory by pointing out that (1) there is considerable pay variation within hierarchy levels, (2) promotion premiums only in part explain hierarchical wage differences and (3) external recruitment is observable on nearly any hierarchy level. We explain these empirical puzzles by combining job-promotion tournaments with higher-level bonus payments in a two-tier hierarchy. Moreover, we show that under certain conditions the firm implements first-best effort on tier 2 although workers earn strictly positive rents. The reason is that the firm can use second-tier rents for creating incentives on tier 1. If workers are heterogeneous, the firm strictly improves the selection quality of a job-promotion tournament by employing a hybrid incentive scheme that includes bonus payments.
Item Type: | Paper |
---|---|
Keywords: | bonuses, external recruitment, job promotion, limited liability, tournaments |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > B4 - Die Gestaltung von Turnieren im Rahmen der Corporate Governance |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | D82, D86, J33 |
URN: | urn:nbn:de:bvb:19-epub-13307-5 |
Language: | English |
Item ID: | 13307 |
Date Deposited: | 10. Jul 2012, 13:08 |
Last Modified: | 04. Nov 2020, 12:53 |