Managers often use tournament incentive schemes which motivate workers to compete for the top, compete to avoid the … bottom, or both. In this paper we test the effectiveness and efficiency of these incentive schemes. To do so, we utilize … optimal contracts in a principal-agent setting, using a Lazear-Rosen type model that predicts equal effort and efficiency …

the principal can mute search incentives by offering an efficiency wage contract. Due to effort substitution, efficiency … wages increase the agent's work effort incentives for a given bonus scheme. Thus, efficiency wages serve as a complement … rather than as a substitute to piece rates. Our results provide a new rationale for the use of efficiency wages as an …

outset objective performance measures of pro fits in each branch were only available on the branch level and managers … allocated bonuses to their employees based on subjective assessments. In a subset of the branches, managers then obtained access …

paper proposes a theory of incentive design allowing for such distorted behavior. At the heart of the theory is a trade …-off between getting the agent to exert effort and ensuring that this effort is used well. The theory covers various moral …

, while the most able managers obtain a wage increase, less able managers are faced with a reduction in wages. Hence our model …