Rank-Order Tournaments as Optimum Labor Contracts / Edward P. Lazear, Sherwin Rosen.

Format:

Book

Author/Creator:

Lazear, Edward P.

Contributor:

National Bureau of Economic Research.

Rosen, Sherwin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0401.

NBER working paper series no. w0401

Language:

English

Subjects (All):

Compensation management.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1979.

Cambridge, Mass. : National Bureau of Economic Research, 1979.

Summary:

This paper analyzes compensation schemes which pay according to an individual's ordinal rank in an organization rather than his output level. When workers are risk neutral, it is shown that wages based upon rank induce the same efficient allocation of resources as an incentive reward scheme based on individual output levels. Under some circumstances, risk-averse workers actually prefer to be paid on the basis of rank. In addition, if workers are heterogeneous inability, low-quality workers attempt to contaminate high-quality firms, resulting in adverse selection. However, if ability is known in advance, a competitive handicapping structure exists which allows all workers to compete efficiently in the same organization.

Notes:

Print version record

November 1979.

Includes bibliographical references.