Question

Define a tournament system of paying workers. What are advantages and disadvantages of this system relative to a time-rate pay system?

Answer 1

Tournament system of paying workers :

The Tournament theory was invented by economists Edward Lazear and Sherwin Rosen. If the wage difference are based not on the marginal productivity, the personal economics uses tournament theory to describe such situations. The wage difference must be based on relative difference between the personals. This theory mainly applied for professional sports and to the practice of law.

The Time rate system is oldest wage payment method. The time is the major factor that determine wages to the worker. Irrespective to output of work done by labours, the wages are paid to them based on the time spent by the workers. For an hour, a week, a month and even a year, the wage rate is fixed.

There are many advantages and disadvantages for the tournament system as compared to the time rate pay system.

Advantages :

1. Powerful competitive incentives can able to create by the tournaments.
2. In the form of recognition and winning, the tournaments provide non - monetary incentives.
3. Matching better workers to the better jobs is the important function plays by the tournaments.
4. Tournaments only require less information about individual performance.

Disadvantages :

1. Tournaments may lead to substantial payoff inequality.
2. While using relative incentives, workers view each other as compitaters, which results more selfish and poor helpful mentality.
3. The counter productive behaviours such as cheating, sabotage and collusion encourage by tournaments.
4. Womens are not encouraged to participate in tournament, even if they are having more skills than the men.