Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/112715
Authors: 
Pull, Kerstin
Stadler, Manfred
Year of Publication: 
2015
Series/Report no.: 
University of Tübingen Working Papers in Economics and Finance 85
Abstract: 
We study product market competition between firm owners (principals) where workers (agents) decide on their efforts and, hence, on output levels. Two worker compensation schemes are compared: a piece rate compensation as a benchmark when workers' output performance is verifiable, and a contest-based compensation scheme with variable, revenue-based prizes when it is only verifiable who the best performing worker is, i.e., only 'contest performance' is verifiable.Without rivalry between firms, the two compensation schemes lead to the same results. In case of product market competition, however, contest-based compensation schemes lead to more employment, more production, and lower firm profits. The reduction in profits represents the cost of being only able to verify workers' contest performance instead of output performance.
Subjects: 
worker compensation
piece rates
team contests
revenue sharing
strategic competition
JEL: 
C72
L22
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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