Economics Assignment: Promotional Tournaments and Employee Behavior

This economics assignment delves into the concept of promotional tournaments as a method of employee incentive, drawing from the work of Harford and others. The report examines the theory, focusing on how tournaments can motivate employees and potentially eliminate bias in performance evaluations. It discusses the advantages, such as incentivizing employees to strive for promotions, and the potential drawbacks, including increased employee unhappiness and the need for higher executive salaries. The assignment references key research papers and articles to support its analysis, providing a comprehensive overview of the topic and its implications in the workplace. The assignment also includes a discussion on the role of promotional tournaments in shaping employee behavior and the overall impact on organizational performance, as well as a brief overview of the key benefits and drawbacks of the system.

Running head: ECONOMICS ASSIGNMENT
Economics assignment
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1ECONOMICS ASSIGNMENT
According to the Harford, one of the ideal way to incentivize the employees is to go
for a promotional tournament (To et al., 2018). The game is simple, where two or more
employees compete against each other and the team that wins the game enjoys promotion.
Winners of the game are provided a hefty increase in the payment as the reward.
During 1979, Sherwin Rosen and Edward introduced the promotional tournament
theory and the paper argued that “employees are seldom promoted to better position for being
comparatively better than their peers, not just because of good and efficient at their duty”
(Devaro & Kauhanen, 2016). in the article Why Your Boss Is Overpaid, according to the
article of Tim Harford argued in favor of the promotional tournament theory through stating
that “we effort our socks off in below paying works in the expectation that one day we’ll
triumph the rat race and become overpaid fat cats ourselves” (Harford, 2006)
According to the book, there are two advantages of the promotional tournament. It
describes that, at first instance promotional tournament removes the biasness of the
supervisors to make differentiation among the employees while making decision (Adler et al.,
2016). Secondly, tournaments can be utilized as the alternative form of performance
evaluation by the managers.
Though it is good, however, unfortunately, there are drastic negative sides too
(Devaro & Kauhanen, 2016). One of the most important among many negativities is that, it
can increase great amount of unhappiness and angst among the employees (Connelly et al.,
2014). Secondly, largely the payment hike, it needs to be in order to prompt motivation which
entails the higher salary of the CEO’s and VP’s.

2ECONOMICS ASSIGNMENT
Reference:
Adler, S., Campion, M., Colquitt, A., Grubb, A., Murphy, K., Ollander-Krane, R., & Pulakos,
E. D. (2016). Getting rid of performance ratings: Genius or folly? A debate. Industrial
and Organizational Psychology, 9(2), 219-252.
Connelly, B. L., Tihanyi, L., Crook, T. R., & Gangloff, K. A. (2014). Tournament theory:
Thirty years of contests and competitions. Journal of Management, 40(1), 16-47.
DeVaro, J., & Kauhanen, A. (2016). An “Opposing Responses” Test of Classic versus
Market-Based Promotion Tournaments. Journal of Labor Economics, 34(3), 747-779.
Harford, T. (2006). Why your boss is overpaid. Forbes, May, 23, 2006.