Working Paper BETA #2019-19

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Title : Legitimacy and Incentives in a Labour Relationship

Author(s) : Emilien Prost

Abstract : We design a two-stage model where the winner of a tournament becomes the executive of his former opponent. We call procedural legitimacy, the legitimacy an executive obtains if he is promoted through a competition with no unfair treatment. The aim of this paper is to study how effort may paradoxically bolster or undermine this type of legitimacy with respect to technological assumptions. Besides we show that, in bayesian terms, winning the competition reinforces the belief of having been advantaged but it also reinforces the belief that the looser will be disadvantaged in the future and thus be less productive. This will tend to make winning the competition by being advantaged much less profitable. To incentivize more effort during the competition, the firm has to design a procedure where opponents are not evaluated by their peers but by neutral and external people. Thus the competition will not bring information on a potential inequality of treatment in the future. We argue civil servant examination in public administration and human resources departments are designed partially for this reason.

Key-words : Legitimacy, leadership, tournament, contract theory, moral hazard, personnel economics

JEL Classification : D00,D86, J50, M50, M51