We investigate the relationship between tournament prices and effort choices in the presence of favoritism. High tournament prizes can decrease agents’ effort supply when the choice of the winner is not perfectly objective but affected to some extent by personal preferences of an evaluator.

We consider the problem of an employer who has to choose whether to reemploy agents with a positive track record or agents who were unsuccessful. While previously successful managers are likely to be of high ability, they have also accumulated wealth and will be harder to motivate in the future....

We investigate two theoretical approaches that focus on bonuses as part of a firm’s long-term wage policy. The first approach argues that explicit bonuses serve as substitutes for implicit career concerns. The second claims that bonuses act as complements to an executive’s internal career....

We study a rank-order tournament in which employees acquire and use private information for an investment decision. In this environment, competition can turn employees into yes men who make investment decisions that excessively agree with preconceived notions. The specter of yes-man behavior may...

We study how pay inequalities affect (i) a firm's rate of voluntary non-CEO manager (VP) VP resignations, and (ii) the likelihood that an individual VP will voluntarily resign. We consider pay inequalities that a VP faces relative to (i) the CEO in her own firm, (ii) other VPs in the firm, and...

An important issue in personnel economics is the design of efficient job allocation rules. Firms often use promotions both to sort workers across jobs and to provide them with incentives. However, the Peter Principle states that employees' output tends to fall after a promotion. Lazear (2004)...

Tax compliance in a between-subjects experiment was higher when the uncertainty about the occurrence of an audit was not resolved until three weeks after participants had filed their tax returns than in a control treatment with immediate uncertainty resolution. Results have important...

In a simple OLG model, we analyze expectations coordination on a Stationary Sunspot Equilibrium (SSE), using an ??eductive?? approach in which agents forecast the forecasting of other participants through Common Knowledge assumptions. We characterize the local stability of a SSE in terms of...