Classic Labor Market Tournaments versus Market-Based Tournaments

Michael Waldman
The Johnson School, Cornell University

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     Last modified: March 11, 2011
     Presentation date: 03/12/2011 1:30 PM in NH 2405, Plenary Session
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Abstract
As initially formulated in the seminal analysis of Lazear and Rosen (1981), an important perspective for understanding the role of promotions in firms is the tournament perspective. That is, a promotion and, in particular, the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital. In this paper I consider whether the best way to model labor-market tournaments is by having firms commit to prizes ex ante as in Lazear and Rosen’s initial formulation, or whether promotion prizes should be modeled as arising endogenously from the signaling role of promotions and the competition between firms for promoted workers.