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Rank-Order Tournaments as Optimum Labor Contracts
Open accessAbstract
This paper analyzes compensation schemes which pay according to an individual's ordinal rank in an organization rather than his output level. When workers are risk neutral, it is shown that wages based upon rank induce the same efficient allocation of resources as an incentive reward scheme based on individual output levels. Under some circumstances, risk-averse workers actually prefer to be paid on the basis of rank. In addition, if workers are heterogeneous in ability, low-quality workers attempt to contaminate high-quality firms, resulting in adverse selection. However, if ability is known in advance, a competitive handicapping structure exists which allows all workers to compete efficiently in the same organization.
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Metadata
- Authors
- Lazear, E. P., & Rosen, S.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1981-10
- Volume
- 89
- Issue
- 5
- Pages
- 841-864
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2050904362
- Cited by
- 4,560
- References
- 0
- FWCI
- 30.53
- Type
- journal article
- Language
- en
- Open access
- green
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
