Standard models of promotion tournaments assume that firms can commit to arbitrary tournament prizes. In this paper, a firm's ability to adjust tournament prizes is constrained by the outside labor market, through the wages other firms are willing to offer to the promoted and unpromoted workers....

This paper studies how promotion tournaments motivate workers to accumulate human capital when wages are constrained by outside labor markets. Patient firms can retain some control over tournament prizes through a relational contract, but if the firms are competitive, full efficiency does not...

Standard models of promotion tournaments assume that firms can commit to arbitrary tournament prizes. In this paper, a firm's ability to adjust tournament prizes is constrained by the outside labor market, through the wages other firms are willing to offer to the promoted and unpromoted workers....