Promotion and demotion contests

Jonathan Levy and Jingjing Zhang

Journal of Economic Behavior & Organization, 2024, vol. 219, issue C, 124-151

Abstract: With a fixed prize budget, to increase total effort, we design a two-stage lottery contest where heterogeneous agents face the prospect of promotion and the threat of demotion from one stage to the next. We develop two competing theoretical models to generate predictions about behavior: (i) the standard economic model and (ii) a behavioral model where agents derive non-monetary utility from winning. The experimental results provide strong support for the use of promotion and demotion in contests when abilities are homogeneous, however, they do not provide strong support for the use of promotion and demotion in contests when ability differences are large. Our experimental results are consistent with the predictions made by the behavioral model.

Keywords: Promotion; Demotion; Heterogeneity; Contest design; Experiments (search for similar items in EconPapers)
JEL-codes: C72 C92 D72 J33 M51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:219:y:2024:i:c:p:124-151

DOI: 10.1016/j.jebo.2024.01.004

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