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Positive self-image in tournaments

By Luís Santos-Pinto

Abstract

This paper analyzes the implications of worker overestimation of productivity for firms in which incentives take the form of tournaments. Each worker overestimates his productivity but is aware of the bias in his opponent’s self-assessment. The manager of the firm, on the other hand, correctly assesses workers’ productivities and self-beliefs when setting tournament prizes. The paper shows that, under a variety of circumstances, firms make higher profits when workers have positive self-image than if workers do not. By contrast, workers’ welfare declines due to their own misguided choices.

Topics: J41 - Labor Contracts, A12 - Relation of Economics to Other Disciplines
Year: 2003
DOI identifier: 10.2139/ssrn.999636
OAI identifier: oai:mpra.ub.uni-muenchen.de:3140

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