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

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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