Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals. This theory was invented by economists Edward Lazear and Sherwin Rosen.
Good examples of the applicability of this theory are found in professional sports or the practice of law. Tournament theory also appears in writing - one writer may be fractionally better at writing than another (and therefore have a better book), but because people allocate (have) small amounts of time to reading, the writer with the marginally better book will sell far more copies as people only want the one book.
Read more about Tournament Theory: Rank-Order Tournaments As Optimum Labour Contracts
Famous quotes containing the word theory:
“The theory of the Communists may be summed up in the single sentence: Abolition of private property.”
—Karl Marx (1818–1883)