Promotions and Incentives: The Case of Multistage Elimination Tournaments

Promotions play an important role for the provision of incentives in firms. We analyze incentives in multistage elimination tourna- ments with controlled laboratory experiments. In our two main treatments, we compare a two-stage tournament to a one-stage tournament. Subjects in the two-stage treatment provide excess effort in the first stage, both with respect to Nash predictions and compared to the strategically equivalent one-stage tournament. Additional control treatments confirm that excess effort in early stages is a robust finding and suggest that above-equilibrium effort might be driven by limited degrees of forward-looking behavior and subjects deriving nonmonetary value from competing.