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PROMOTIONS AS WORK INCENTIVES
Author(s) -
Berkowitz M. K.,
Kotowitz Y.
Publication year - 1993
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1993.tb01297.x
Subject(s) - incentive , moral hazard , promotion (chess) , work (physics) , economics , production (economics) , microeconomics , business , law , political science , engineering , mechanical engineering , politics
Why do professional partnerships like law firms, accounting practices, and management consulting groups to name a few, rely almost exclusively on promotions for incentives and do not typically use incentive pay to motivate their associates? We compare three schemes (relative‐input‐based piece rates, tournaments with monetary prizes, and tournaments with promotions as prizes) within an environment characterized by group production and double moral hazard induced by possible wealth constraints on the supervisors. We find that the difficulty in implementing promotion tournaments is possibly an important reason for the existence of firms.