Koch, A K and Peyrache, E (2006) Tournaments, Individualized Contracts and Career Concerns.
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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 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.
This is a Submitted version This version's date is: 5/5/2006 This item is not peer reviewed
https://repository.royalholloway.ac.uk/items/e090dbb0-322d-4c99-9388-1194efe588f8/3/
Deposited by Research Information System (atira) on 24-Jul-2012 in Royal Holloway Research Online.Last modified on 24-Jul-2012