Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions

Jed DeVaro

MPRA Paper from University Library of Munich, Germany

Abstract: Applying a simultaneous-equations estimation approach that accounts for both worker and firm behavior, I show that six alternative promotion models can be empirically distinguished to a greater extent than previously thought. I show that classic tournaments, market-based tournaments, and performance standards can be sharply distinguished when promotions induce worker effort. I also show that market-based tournaments with effort choices can be sharply distinguished from those with human capital investments. A key insight is that an empirical test can be based on the “opposing responses” property whereby workers and firms adjust their choice variables in opposite directions when the stochastic component of worker performance changes. Finally, I propose a new approach – also requiring simultaneous equations – for empirically distinguishing between classic tournaments and market-based tournaments with human capital investments, showing that the two models differ in their predictions regarding the average wage between job levels.

Keywords: tournaments; promotions; relative performance; internal promotion competitions; wage spreads; tests of tournament theory (search for similar items in EconPapers)
JEL-codes: M5 M50 M51 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lab
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35175

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