Setting incentives: temporary performance premiums versus promotion tournaments.
Labour. Review of Labour Economics and Industrial Relations
2004
18
4
December
661-674
wage incentive ; wage payment system
Wages and wage payment systems
English
Bibliogr.
"Two alternative relative compensation schemes are compared with respect to the output that can be generated at a given sum of salaries. While the promotion regime guarantees that any salary increase is permanent, the premium system allows a reduction in the income of an agent to the base salary after one period. It is shown that the optimum promotion tournament system induces a higher total output than the optimum premium system. This result is obtained because a promotion regime allows a distortion in a contest in favor of winners of previous contests."
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