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Executive Pay and Tournament Theory

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Executive pay is attracting a lot of attention in Australia and world-wide. Tournament Theory states that, the greater the difference between your and your boss's pay, the harder you (and everyone else!) will work. Discuss executive pay in the light of Tournament Theory.

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This solution looks at executive pay and tournament theory.

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Take two brick layers. If brick layer #2 can lay bricks twice as fast as brick layer #1 then you would expect brick layer #2 to earn twice as much as brick layer #1. That is what traditional economic theory tells us.

But let's look at some other scenarios such as the Olympic Games. The rewards given to the gold medal winner are much higher than those given to the silver medal winner (in terms of future ...

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