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http://hdl.handle.net/10419/33412
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| Title: | | Tournaments, individualized contracts and career concerns  |
| Authors: | | Koch, Alexander K. Peyrache, Eloïc |
| Issue Date: | | 2005 |
| Series/Report no.: | | IZA Discussion Papers 1841 |
| 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 optimal 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. The paper discusses the distortions that can arise and explores the robustness of the result. |
| Subjects: | | tournaments reputation asymmetric learning relative performance contracts |
| JEL: | | D82 J33 L14 M52 |
| Document Type: | | Working Paper |
| Appears in Collections: | | IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)
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