Tournaments, Individualized Contracts and Career Concerns

A K Koch, E Peyrache

Research output: Working paper

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Young professionals typically do not enter into life-long employment relations with a single firm. Therefore, future employers can learn about individuals' abilities from the observable facts regarding earlier work relations. We show that these informational spill-overs have profound implications for organizational design and the resulting incentive contracts. Through the organizational choice and the contracts that it offers individuals, a firm can strategically manipulate the flow of information to future employers and sharpen incentives. Using a simple moral hazard model, we demonstrate that relative performance contracts, such as rank-order tournaments, can be optimal even though the extant explanations for the optimality of such compensation schemes are absent.
Original languageEnglish
Place of PublicationEgham
Publication statusPublished - 5 May 2006

Publication series

NameTournaments, individualized contracts, and career concerns.


  • Tournaments
  • Reputation
  • Asymmetric Learning
  • Relative Performance Contracts

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