Promotions as Work Incentives

Michael Berkowitz and Y Kotowitz

Economic Inquiry, 1993, vol. 31, issue 3, 342-53

Abstract: Why do professional partnerships, like law firms, accounting practices, and management consulting groups to name a few, rely almost exclusively on promotions for incentives and do not typically use incentive pay to motivate their associates? The authors compare three schemes (relative-input-based piece rates, tournaments with monetary prizes, and tournaments with promotions as prizes) within an environment characterized by group production and double moral hazard induced by possible wealth constraints on the supervisors. They find that the difficulty in implementing promotion tournaments is possibly an important reason for the existence of firms. Copyright 1993 by Oxford University Press.

Date: 1993
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