Risk-taking in subjective promotion tournaments

Illoong Kwon ()

Applied Economics Letters, 2013, vol. 20, issue 13, 1238-1243

Abstract: This article considers a promotion tournament where the winner is decided by the principal's posterior belief about the agents’ abilities, called a subjective promotion tournament. If the agents can choose the risk of their performance as well as their effort, this article shows that such a subjective tournament can be better than an objective tournament where the winner is decided by the agents’ verifiable performance measures only. This is because the subjective tournament leads to lower uncertainty about the agents’ abilities and a higher level of agents’ effort, thereby providing better sorting and incentive effects.

Date: 2013
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DOI: 10.1080/13504851.2013.802081

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