Target Setting in Tournaments : Theory and Evidence from China

Motivated by the prevalence of economic targets at all levels of territory administration in China, this paper proposes a Tullock contest model to study optimal target setting in a multi-layered tournament-based organization. In our model, targets are used by upper-level official to convey the importance of economic growth and incentivize subordinates in the tournaments. Our model predicts a top-down amplification of economic growth targets along the jurisdiction levels, that explains the observed pattern in China. Using both provincial and prefectural level data, we test the model predictions and find consistent evidence