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Estimating a tournament model of intra-firm wage differentials

Chen, Jiawei and Shum, Matthew (2010) Estimating a tournament model of intra-firm wage differentials. Journal of Econometrics, 155 (1). pp. 39-55. ISSN 0304-4076.

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We consider the estimation of a tournament model with moral hazard (based on Rosen (1986), AER)) when only aggregate data on intra-firm employment levels and salaries are available. Equilibrium restrictions of the model allow us to recover parameters of interest, including equilibrium effort levels in each hierarchical stage of the firm. We illustrate our estimation procedures using data from major retail chains in the US. We find that only a fraction of the wage differential directly compensates workers for higher effort levels, implying that a large portion of the differentials arises to maintain incentives at lower rungs of the retailers.

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Shum, Matthew0000-0002-6262-915X
Additional Information:© 2009 Elsevier B.V. Received 31 December 2008; revised 31 December 2008; accepted 25 August 2009. Available online 1 September 2009. We are grateful to Joe Harrington for providing us access to the data used in this analysis, and for useful comments. We also thank Mike Baye, Rick Harbaugh, Nick Hill, Ben Klemens, Philippe Marcoul, Joanne Roberts, Chris Ruebeck, Nadia Soboleva, Ayako Suzuki, Quang Vuong, and seminar participants at Chicago, Georgetown, Indiana, Northwestern, Yale, the 2004 IIOC conference, and the 2005 SITE conference for useful suggestions.
Subject Keywords:Tournament model; Estimation; Wage differentials; Incentive effect; Retail chains
Issue or Number:1
Classification Code:JEL classification: C13; J31; L81
Record Number:CaltechAUTHORS:20100401-103818517
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:17837
Deposited By: Ruth Sustaita
Deposited On:02 Apr 2010 22:02
Last Modified:03 Oct 2019 01:34

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