Promotion tournaments in market equilibrium

Jan Zabojnik

Economic Theory, 2012, vol. 51, issue 1, 213-240

Abstract: This paper studies how promotion tournaments motivate workers to accumulate human capital when wages are constrained by outside labor markets. Patient firms can retain some control over tournament prizes through a relational contract, but if the firms are competitive, full efficiency does not obtain in equilibrium even for discount factors arbitrarily close to one. Full efficiency, however, may be feasible in firms with superior technologies; thus, technological efficiency breeds incentive efficiency. The paper also shows that a wage floor leads to insufficient human capital investment in competitive firms, but could lead to excessive investment in technologically superior firms. Copyright Springer-Verlag 2012

Keywords: Promotions; Tournaments; Relational contracts; Human capital investment; C73; J31; L14; M5 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s00199-011-0606-x

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