Working Paper: CEPR ID: DP4306
Authors: Gil S. Epstein; Shmuel Nitzan
Abstract: According to the well-established tournament literature, incomplete information regarding employees? productivity is essential for the rationalization of (efficiency-enhancing) tournaments. In this Paper we propose an alternative rationalization of tournaments focusing on a fully informed principal whose objective is to maximize a weighted average of the profitability (productivity) of their team and of the promotion-seeking efforts of their employees. Our first main result clarifies the conditions under which the principal has an incentive to create a tournament that determines the promoted employee. We then examine the effect of the employees' productivity on their probability of promotion and on the extent of the resources wasted in the tournament. In particular, we specify the conditions that ensure that the most productive employee (the natural candidate for promotion) is less likely to be promoted and the conditions under which higher employee's productivity results in increased wasted promotion-seeking efforts.
Keywords: promotion; tournaments; wasted efforts
JEL Codes: D20; D72; J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher employee productivity (J24) | Increased wasted promotion-seeking efforts (J62) |
| Employee productivity (J24) | Probability of promotion (J62) |
| Probability of promotion (J62) | Promotion tournament initiation (J62) |
| Employee productivity (J24) | Total resources invested in the tournament (Z23) |