Tournament Theory - Basic Model, Theoretical Implications, and Empirical Evidence E-Book
Denis Drechsler
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- Herausgeber: GRIN Verlag
- Sprache: Englisch
Seminar paper from the year 2004 in the subject Leadership and Human Resources - Miscellaneous, grade: 1, University of Wisconsin-Milwaukee, language: English, abstract: Wie lassen sich Unterschiede im Lohnniveau erklären? Tournament Theory vertritt die Ansicht, dass Firmen eine auf Anreize ausgelegte Beförderungsstrukture wählen, die einem Turnier gleicht. Damit, so die Befürworter der Theorie, lassen sich die hohen Gehälter von Unternehmensvorständen sowie die weite Spanne zwischen den Gehältern der Unternemensführung sowie der übrigen Belegschaft erklären. Die vorliegende Arbeit präsentiert die Grundtheorie und erläutert anhand vieler Beispiele, wie diese Anwendung finden kann im täglichen Leben. Untersucht werden u.a. die Bereiche des professionellen Sports, große Aktienunternehmen sowie kleine und mittelständische Unternehmen.
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Veröffentlichungsjahr: 2012
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University of Wisconsin-Milwaukee1. IntroductionDepartment of EconomicsA major branch of Labor Economics studies wage determination while particularly focusing on the underlying work relationships. Standard economic theory predicts that wages are equal to the value of the marginal product. In recent years, however, more attention has been paid to alternative compensation schemes that take account of the specific attributes characterizing labor markets.Tournament Theory - Basic Model, Impli-AsLAZEAR (1979) points out, work relationships can ultimately be typified as a Principle Agent situation between employers who do not havecations, and Empirical Evidence
perfect information about their workers’ level of effort and employees who derive additional utility from shirking. Different from standard economic belief workers’ pay can therefore deviate from their marginal utility, thus creating inefficiencies. One possible solution discussed in
by
the literature is the work-life incentive scheme that withholds part of the worker’s pay early in a person’s professional career and rewards
Denis Drechsler
loyal behavior by continuously increasing wages with tenure.
Other studies have concentrated on tournament-type compensation schemes (see, e.g., LAZEAR/ROSEN, 1981; GREEN/STOKEY, 1983; NALEBUFF/STIGLITZ, 1983; MALCOMSON, 1984; ROSEN, 1986; BULL et al., 1987). Though related to work-life incentive schemes, tour-
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Tournament Theory - Basic Model, Implications, and Empirical Evidence Tournament Theory - Basic Model, Implications, and Empirical Evidence
nament theory offers a different insight into the means by which firms promotion schemes in academic professions. Furthermore, tournament can motivate and control their workers. Different from wage contracts, theory can help to understand the processes that determine the electournament theory emphasizes the interpersonal comparison between tion of political leaders. Another prominent field where tournament theworkers as a means to determining a worker’s pay. It depicts promotions ory is employed and empirically tested is sports, where the quality of and wages as resulting from sequential elimination tournaments within performance allegedly depends upon the overall prize-money that can be the firm, while a finite amount of prizes are awarded according to a won. In fact, many researchers believe that professional sports may be person’s relative output. Consequently, the goal for an employee is not the only realm that allows an empirical application of tournament theory only to perform well, but primarily to do better than the others. As (i.e. ALCHIAN, 1988).
LAZEAR and ROSEN (1981) show in their seminal paper on rank-order Starting with Lazear and Rosen’s basic model this paper gives an over- pre-fixed remuneration schemes can be a very efficient view of the existing literature that empirically tests tournament theory.
device for a firm to overcome the Principle Agent problem. Especially The rest of the paper is structured as follows: section 2 sketches the
