An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments

Jed DeVaro and Antti Kauhanen ()

Journal of Labor Economics, 2016, vol. 34, issue 3, 747 - 779

Abstract: We use a systems-based econometric method to show that classic and market-based tournament models are empirically distinguishable since the role of risk differs across these models. Implementing the method using a large, Finnish, worker-firm matched panel, we find support for classic tournaments given that promotions depend on relative performance, the firm’s wage structure is convex, promotion probabilities are decreasing in the number of competitors, performance is increasing in the wage spread, and workers and firms adjust their choice variables in opposite directions when the variance of the stochastic component of worker performance changes.

Date: 2016
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