Tournaments, Individualized Contracts and Career Concerns. / Koch, A K; Peyrache, E.

Egham, 2006. (Tournaments, individualized contracts, and career concerns.).

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Abstract

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

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NameTournaments, individualized contracts, and career concerns.
This open access research output is licenced under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

ID: 886899