Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/101848
Authors: 
Stracke, Rudi
Sunde, Uwe
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Papers 8368
Abstract: 
This paper shows that the incentive effects of heterogeneity may be positive rather than negative in dynamic contests with multiple stages. In particular, the well-studied adverse effects of heterogeneity in static interactions are compensated by positive continuation-value and selection effects. Due to these positive dynamic incentive effects of heterogeneity that increase the incentives of relatively more able workers, heterogeneity is unlikely to be as detrimental as commonly perceived for incentives in organizations with multiple hierarchy levels. Heterogeneity of the workforce may even be optimal from the perspective of a firm that provides incentives using a multi-stage promotion contest.
Subjects: 
incentive provision
multiple-stages
promotion contest
heterogeneity
JEL: 
M52
J33
Document Type: 
Working Paper

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