Several empirical studies have challenged tournament theory by pointing out that (1) there is considerable pay variation within hierarchy levels, (2) promotion premiums only in part explain hierarchical wage differences and (3) external recruitment is observable on nearly any hierarchy level. We...

The existing literature on the comparison of tournaments and piece rates as alternative incentive schemes has focused on the case of unlimited liability. However, in practice real workers' wealth is typically restricted. Therefore, this paper compares both schemes under the assumption of limited...

Splitting leagues or tournaments seems to be puzzling when agents are homogeneous and splitting leads to a negative competition effect. However, it can be shown that the principal can nevertheless benefit from splitting. First, splitting can be used as a divide-and-rule strategy by the principal...

everal empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

It is well-known that, in static models, minimum wages generate positive worker rents and, consequently, ine?ciently low effort. We show that this result does not necessarily extend to a dynamic context. The reason is that, in repeated employment relationships, ?rms may exploit workers’ future...

In practice, two types of tournaments can be distinguished - U-type and J-type tournaments. In U-type tournaments, workers receive prizes that have been fixed in advance. In J-type tournaments, the employer fixes an aggregate wage bill in advance, which is then shared among the workers according...