How Many Winners Are Good to Have? On Tournaments with Sabotage From an employer’s perspective a tournament should induce agents to exert productive activities but refrain from destructive ones. We experimentally test the predictive power of a tournament model which suggests that – within a reasonable framework – productive and destructive activities are not influenced neither by the number of ...

When a candidate for the top management position is pre-associated with the firm, prior information exists that partially reveals his suitability for the position. In a dynamic framework of job matching, we show that in the presence of such pre-appointment information, the firm’s decision on managerial appointment differs in significant ways between inside and outside candidates. The difference...

Using a sample of male and female workers from the 1992 Employment in Britain survey we estimate a generalised grouped zero-inflated Poisson regression model of employees’ selfreported lateness. Reflecting theoretical predictions from both psychology and economics, lateness is modelled as a function of incentives, the monitoring of and sanctions for lateness within the workplace, job satisfacti...

To ascertain whether the form of managerial compensation affects a firm’s long-term operating performance, we track IPOs for five years after the expiration of the stabilization period. New public companies perform better when managers receive a balanced combination of stock option grants and equity ownership. Firms with unbalanced compensation arrangements, large option grants and little equit...

Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics In this paper, we discuss recent evidence from economic experiments that study the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments:...

Performance Appraisals and the Impact of Forced Distribution: An Experimental Investigation A real effort experiment is investigated in which supervisors have to rate the performance of individual workers who in turn receive a bonus payment based on these ratings. We compare a baseline treatment in which supervisors were not restricted in their rating behavior to a forced distribution system in...

Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause considerable damage. Agency theory’s insistence on linking the compensation of managers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome by improving variable pay for performance, as selfish extrinsic motivation is reinforced. Ba...

This paper studies a relational contracting model in which the agent is protected by a limited liability constraint. The agent’s effort is his private information and affects the output stochastically. We characterize the optimal relational contract and compare the dynamics of the relationship with that under the optimal long-term contract. Under the optimal relational contract, the relationshi...

I study managers' risk-taking behavior and how it is affected by equity-based compensation. I find that in response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 5%. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives. In particular, firms with low CEO portfolio sensiti...

The ability of groups to implement efficiency-enhancing institutions is emerging as a central theme of research in economics. This paper explores voting on a scheme of intergroup competition, which facilitates cooperation in a social dilemma situation. Experimental results show that the competitive scheme fosters cooperation. Competition is popular, but the electoral outcome depends strongly on...