The Efficacy of Tournaments for Non-routine Team Tasks

Abstract : Tournaments are often used to improve performance in innovation contexts in which teams perform non-routine tasks. Tournaments may not only be effective because they provide monetary incentives but also because they render teams' identity and social image concerns salient. This study provides causal evidence on the relative importance of these behavioral aspects vis-a-vis monetary prizes in a non-routine task. Using a natural field experiment with more than 1,700 participants, we exogenously vary salience of team identity, social-image concerns, and whether teams face monetary incentives. We find that increased salience of team identity alone does not improve team performance. Social image due to a public ranking affects mostly top-performing teams, whereas additional monetary incentives improve outcomes for all teams across the performance spectrum. Further, the introduction of tournaments does not reduce teams' willingness to explore original solutions and does not crowd out intrinsic motivation to perform similar tasks in the future.

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Do Managerial Incentives Facilitate Collusion?

Abstract : This paper investigates the impact of management incentives on firm cartels. It is usually the manager which acts on behalf of the owner and is running the firm. To mitigate the agency problem, the owner puts corporate governance mechanism in place, which incentivize managers to align their interest with that of the firm’s shareholders. While this is beneficial for the firm performance in the first place, the structure of these contracts might change the attraction of collusion for managers. Consequently, we analyze how manager remuneration schemes impact their incentives for collusion, cartel formation and stability. Exploiting different data sources allows us to identify the managers remuneration schemes and cartels within the United States. We find that higher long-term incentives of managers indeed affect collusion. Our analysis shows that a higher degree of manager's long-term incentives leads to (i) a higher probability of a firm's cartel participation, (ii) a higher probability of forming a cartel and (iii) no effect on the termination of a cartel.

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Capital (mis)allocation and Incentive Misalignment

Abstract : This paper studies the impact of managerial incentives on the allocation of capital. We provide empirical evidence that short-termist incentives cause capital misallocation within firms, using a within-firm estimator and a US accounting reform as an exogenous shock to managers' incentives. Managers shift investments towards more short-lived assets, effectively reducing the durability of firms' capital stocks. We then build a model of firm investments with incentive frictions that we calibrate to the US economy. Our outcomes imply that the pass-through from incentives to investments is large: more short-termist incentives raise wedges between the marginal products of capital goods, causing declines in output and real wages.

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