Precision in U-Type and J-Type Tournaments

In this paper I contrast the impact of precision, i.e., the level of accuracy with which workers' performance is assessed, on wage costs in U- and J-type tournaments. In U-type tournaments prizes are fixed. In J-type tournaments only anoverall wage sum is specified. The principal can increase precision by including more signals in performance measurement. Doing so leads to stronger incentives inU-type tournaments, but not in J-type tournaments. The principal strictly prefers a U-type tournament if workers receive a rent under limited liability and the costs of increasing precision are low. However, if workers are inequity-averse and have unlimited liability, the J-type tournament leads to lower wage costs.

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Year of publication:	2005
Authors:	Schöttner, Anja
Published in:	Humboldt-Universität zu Berlin, Walther-Rathenau-Institut für Organisationstheorie - Publikationen In: Schmalenbach Business Review, 57, S. 167-192, 2005
Subject:	Wettkampf \| Tournaments \| Signaling \| Lohnkosten \| Genauigkeit \| correctness

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1. Introduction
2. The Model
3. Providing Incentives
4. Wage costs under unlimited liability
5. Limited liability
6. Inequity Aversion
7. Conclusion