Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 03-25: Incentives in Economic Departments: Testing Tournaments?

Tom Coupé (), Valerie Smeets () and Frederic Warzynski ()
Additional contact information
Tom Coupé: EERC, Kiev, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Valerie Smeets: Department of Economics, Aarhus School of Business, Postal: Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Frederic Warzynski: Department of Economics, Aarhus School of Business, Postal: Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: Existing tests of tournament theory have recently been criticized for their failure to distinguish tournaments from other theories that have similar effects like standards and marginal productivity theory (Gibbs, 1994, 1996; Prendergast, 1999). In this paper, we propose a series of empirical tests that allow to make this distinction. We use a dataset of average wages by rank in US economic departments over the period 1977-1997 and link this information to individual production data to test whether wage gaps affect the productivity and cooperative behavior of economists and to control for marginal productivity theory. We find that the wage gap is increasing along the hierarchy, even when controlling for production by rank. Moreover, wages are more sensitive to productivity for higher ranks. We find some evidence that higher wage gaps lead to higher productivity but not that wage gaps depend on the number of contestants nor that they lead to less cooperation.

Keywords: incentives; sorting; tournaments; standards; marginal productivity; economic departments

JEL-codes: J00; M54

31 pages, May 26, 2003

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