When using a tournament in multi-period settings, firms have discretion in selecting the tournament horizon. For example, firms can use a single tournament (a grand tournament) or a sequence of multiple tournaments, each with a shorter horizon than a grand tournament (a repeated tournament). Firms have also begun to use a combination of both in which a repeated tournament is embedded within a grand tournament (a hybrid tournament). Using an experiment, we investigate whether the effect of tournament horizon on performance depends on the dynamic complexity of the task, which reflects the potential for effort in one period to influence the link between effort and performance in future periods. When dynamic task complexity is low, we find that performance is greatest in the hybrid tournament, followed by the repeated and then the grand tournament. In contrast, when dynamic task complexity is high, we find that performance is greatest in the repeated tournament, followed by the grand and hybrid tournaments, with similar performance in the latter two tournaments. More generally, the results of our experiment suggest that the effect of tournament horizon on performance depends on dynamic task complexity. These results can help firms make better decisions when designing their tournaments by reinforcing the need to align the tournament horizon with the task.

We study household decisions to acquire energy-using assets in the presence of rising incomes. We develop a theoretical framework to characterize the effect of income growth on asset purchases when consumers face credit constraints. We use large and plausibly exogenous shocks to household income generated by the conditional-cash-transfer program in Mexico, Oportunidades, to show that asset acquisition is nonlinear, depends, as predicted in the presence of credit constraints, on the pace of income growth, and both effects are economically large among beneficiaries. Our results may help explain important worldwide trends in the relationship between energy use and income growth.

The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging market policy makers, however, believe that inflows lead to credit booms and rising output; the evidence appears to go their way. To reconcile theory and reality, we extend the set of assets in the Mundell-Fleming model to include both bonds and non-bonds. At a given policy rate, inflows may decrease the rate on non-bonds, stimulating financial intermediation and, potentially, output as well. We explore the implications, and find support for the key predictions in the data.

Employee contracts often allow for managerial discretion, such that the manager decides after observing an employee's performance how that employee will be rewarded or penalized. Importantly, the effects of such evaluation outcomes can extend beyond the employee(s) directly affected, because such outcomes can be observed by other employees within the firm. The net effect of such vicarious learning as an indirect control depends on the inferences employees make after observing a peer's evaluation outcome. In this study, we use an experiment to investigate whether the inferences observer-employees make about how managers evaluate and reward employee behavior depend on whether the valence of the observed outcome is positive or negative. Using the setting of a strategic performance measurement system, we test and find support for a causal model, in which the valence of the observed outcome influences observer-employees' inferences and subsequent behavioral focus via their psychological distance from, and their construal of, the observed outcome. Our results suggest that how observer-employees respond after observing a peer employee's evaluation outcome is asymmetric. Specifically, when contemplating their own behavior, employees who observe positive outcomes focus on the performance measures within the strategic performance measurement system, whereas those who observe negative outcomes focus on the underlying strategic construct.