Tournaments in the public sector

Abstract

Tournament theory shows that a firm may motivate employees by running competitors for rewards either for a group or individualistic schemes. The empirical literature on Tournaments has been grown. However, many studies use no appropriate data. This paper provides the first empirical evidence on three key assumptions in these models using a special case surrounding the incentives for workers in public sector. The dataset contains information from the Coordenacao de Fiscalizacao (i.e., the Inspections Division) of the Secretaria da Receita Federal (SRF) on the bonus program created by the Brazilian government to compensate tax officials for their efforts in collecting taxes and uncovering tax violations. We constructed a larger unbalanced panel data Tax collection containing information upon 110 tax agencies distributed between 10 regions and 45 time period by month, which allowed us to support the predictions raised above. In order to examine the tournaments predictions we emphasize the dynamic of the process taking into account the unobserved heterogeneity and endogeneity problems using appropriate GMM techniques. This enable us to pondered the possible inertia for time adjustments within tax agency, possibly in determining strategies to improve the tax agency performance on the sources most valuable for collection, which supports the hypothesis of learning by doing. The results also demonstrated evidence to support the following tournaments hypothesis: (1) prizes motivate agents to exert effort; (2) number of participants increased as the size of the prize increase; (3) differential in wages and bonus directly affect workers incentives.