Do Europeans Shy Away from Competition? Types of Contestants and the Structure of Tournaments

Abstract

For a large European data set, we find that in about 21% of all cases, cross-hierarchy pay schedules are inconsistent with tournament theory for managers from the highest echelons. For middle echelons, this number increases to 55%. We study whether social preferences of potential contestants give rise to low implementation rates of powerful organizational incentive schemes. Our results are affirmative. We show that the more individuals are inequity and competition averse, (i) the lower is the spread of managerial pay between echelons, and (ii) the smaller are the incentive effects generated by tournaments. Our evidence, however, is inconsistent with the hypothesis that pay dispersion is lower if individuals are more hawkish, or less trustworthy.