Works
- Rank-Order Tournaments as Optimum Labor Contracts, Journal of Political Economy, 1981
In Tactics of Organizational Politics
Ideas
Tournament theory. When output is hard to measure precisely, paying people by their rank among competitors can produce efficient effort; prizes are fixed in advance and go to whoever ranks highest. Effort depends on the size of the gap between the winner's prize and the others, so large rewards for a top position can be efficient even when the winner is only slightly better than the runner-up.
What it explains
Lazear and Rosen explain why a contest for a single prize, such as a promotion or succession, can extract a great deal of effort from every contender, including those who lose. They also explain why contenders compete on whatever the judge is seen to reward.