The Identity of Human Resources in Tournament Theory

Vebtasvili

Abstract: This paper summarizes the identity of human resources in tournament theory. It aims

to analyze the contributions made by ideas from the concept of identity on behavioral

economic models and human resources concepts from tournament theory. The paper simplifies

the comparison of human resources in management personnel systems and job markets of

Indonesian and Japanese companies. A game-theoretical model is formed based on the results.

Keywords: identity, human resources, tournament theory

1. Introduction 　　Integrating identity into an economic analysis allows new views to be formed on many economic problems. Identity influences not only the daily life of societies but also the policies of organizations (Davis, 2003). It can account for many phenomena that economics currently struggles to explain. For example, it is easy to recognize this by what unique holidays are recognized by Asian, European, or American companies.　　The standard neoclassical framework incorporates identity as an argument in the utility function. Since the 1970s, the concept of identity has been extensively investigated in psychology and sociology and has begun to receive significant attention in economics (Sen, 1985; Sen, 1999; Davis, 1995; Davis, 2003; Davis, 2006; Davis, 2007; Akerlof and Kranton, 2000; Akerlof and Kranton, 2002; Akerlof and Kranton, 2005; Akerlof and Kranton, 2010; Kirman and Teschl, 2004; Mason, 2004; Darity, Mason, & Stewart, 2006). Numerous scholars have adopted identity as a central concept in psychology, sociology, political science, anthropology, and history.　　Social categories combine with the various rules of behavior that individuals internalize. Sterman (1989) used laboratory experiments to investigate essential economic agents’ behavior in a variety of microeconomic and decision-theoretic contexts, such as auction markets, portfolio choice, and preference elicitation. The participants managed a simulated economy and played the role of managers in a simple macroeconomic setting and maintained sufficient capital stock (plants and equipment) to satisfy demand.　　The concept of social identity is understood from the individual’s point of view as the person’s “sense of self” or “self-image.” An individual’s self-image is multidimensional and consists of diverse social categories (e.g., ethnicity, gender, religion; Akerlof and Kranton, 2000). Social categories and broad social science classifications are used in academic research and government agencies to describe widely-recognized social aggregates. They are associated with various behavioral rules that individuals internalize in a process that constitutes the individual’s identity or sense of self. The behavior of people in organizations varies from person to person.　　Human resources (HR) play an essential role in managing people as an organization’s primary asset. HR develop effective programs and implement policies that leverage talent, align with

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organizational competencies, and execute organizational strategies (Ruona and Gibson, 2004). Individuals often hire others to work on their behalf. Yet, an agents’ pursuit of self-interest may undermine their organizational relationships. A principal might employ an agent if the principal owns some assets but lacks the skills to maximize the asset’s value.　　This paper presents a summary of the identity of human resources according to tournament theory. This research aims to identify the contributions made by the ideas that integrate the concept of identity into behavioral economic models and HR concepts from tournament theory.

2. Links between Sociology, Psychology, and Economics　　The concept of identity was introduced into the neoclassical utility-maximizing framework by Akerlof and Kranton in an analysis that draws directly from social psychology’s social identity approach and self-categorization theory. Social categories are linked with various rules of behavior that individuals internalize in a process that constitutes the individual’s identity or sense of self (Davis, 2007). 　　Identity may describe an instant of interaction, a day, a few years, a lifetime, or generations. The concept of identity expands economic analyses for the following reasons: First, identity can explain negative behavior; the behavior of a person can be examined and evaluated as maladaptive or even self-destructive by individuals with other identities. Second, identity builds on a new type of exteriority. The actions of one person have meaning and evoke responses for others. Third, identity reveals a new path or means by which preferences can be changed. Fourth, the choice of identity that an individual makes may be one of their most important economic decisions (Akerlof and Kranton, 2000). 　　Psychology suggests that economists should consider identity as an argument in utility functions. Psychologists have long considered the self or ego a dominant influence on human behavior. They have also correlated an individual’s sense of self with the social environment̶as identifications are related to social groups. Individuals agree with and are distinguished from others based on these groups (Brown, 1986; Wetherel, 1996; Feldman, 1998; Akerlof and Kranton, 2000).　　People separate themselves and others into social categories in the formal language of social sciences. Social categories and norms are automatically tied together, and it is assumed that people from different social categories behave differently. The norms also specify how different types of people treat each other and how to integrate identity into economic models of behavior (Akerlof, 2010).　　Many traditional psychological and sociological concepts̶self-image, ideal form, in-group and out-group, social category, identification, anxiety, self-destruction, self-realization, and situation̶fit naturally in our framework, allowing an expanded analysis of economic outcomes. This framework is perhaps a way to incorporate the many different non-pecuniary motivations for behavior into economic reasoning, with considerable generality and a common theme (Akerlof, 2010).

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3. Human Resources Concepts　　Managing people in the role of an organization’s primary asset has encouraged human resources (HR) to progressively develop programs and policies that strengthen talent to connect with organizational competencies and execute organizational strategies (Ruona and Gibson, 2004). MacDonald (2003) states that HR faces the challenges of creating a next-generation work environment that is highly collaborative and capable of not only educating, but also encouraging, the seamless movement of ideas and expertise that present both intellectual and technical challenges as professionals. To address this challenge, HR contemplates organizational strategy and workforce implications. Table 1 shows that 21st century HR is derived from a particular mix of human resource management (HRM) practices and procedures, human resources development (HRD), and organization development (OD) (Grieves and Redman, 1999; Sammut, 2001; Ruona and Gibson, 2004).

Table 1. The Evolutions of HRM, HRD, and OD: Toward a Twenty-First Century HR

Operationally Reactive Operationally Proactive Strategically Reactive Strategically ProactiveHRM -essential personnel

functions of managing people-administrative-regulatory

-improve the efficiency of HR practices and workforce-manage labor costs-HRM metrics-employee satisfaction, involvement, and organizational climate

-support strategy execution through people and culture-emphasis on results-HR technology systems to automate “routine” processes-high-performance work systems-change management and OD

-contribute to an organization’s core competence-design and manage HR systems as strategic assets-create strategic alternatives-cultural change to support radical innovation

HRD -job and task analysis-instructional systems design-job-focused training-instructor-driven delivery

-needs assessment-improving individual outcomes with an emphasis on non-training conditions-alternative methods for training delivery-evaluation

-systemic models and methods for the whole system performance improvement and performance consulting-multiskilling-cross-training-constructivist learning approaches-performance support systems

-ensuring knowledgeable, agile, reflective workforce and workplace-organizational learning and learning organization-self-directed learning and development-knowledge management

OD -personal development-interpersonal relations-group dynamics and team building-process consultation

-sociotechnical approaches-market-driven and “packaged” solutions to

accelerate change-assessments to demonstrate intervention effectiveness

-strategic, long-term, and multiple-level change-alignment of strategy, design, and management-flattened organizational designs and collaborative approaches

-organizational transformation-whole systems change-” inter” focus-visioning, scenario planning, future search-trans-organizational OD

Source: (Ruona and Gibson, 2004).

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　　HRD is the process of developing and unleashing expertise. It seeks to enhance human learning, improve performance, and facilitate change at the individual, group/team, organization, and societal levels (McLean, 2001; Swanson, 2009). HRM is, in its broadest conception, the generic activity of acquiring, motivating, and coordinating employees inside business organizations (Boxall, 2011). The design and management of human resource systems are based on employment policies, comprising policies designed to maximize organizational integration, employee commitment, flexibility, and quality of work (Hendry and Pettigrew, 1990; Guest, 1997). However, the actual practice of HRM varies significantly among organizations both within and across nation-states (Sparrow, Schuler, and Jackson, 1994; Brewster and Mayrhofer, 2012; Kaufman, 2014). OD also increasingly focuses on organizational transformation or second-order change among persons, organizations, and cultures. OD focuses on collective learning and organizational growth. 　　HRM, HRD, and OD organize, partner, and think innovatively about how they relate and how what they do impacts people and organizations so they can contribute strategically to organizations. An evolutionary analysis helps explain why the boundaries between HRM, HRD, and OD exist, why the boundaries between them appear to overlap, how the links between them create a necessary synergy for HR to become a genuinely respected organizational partner (Ruona and Gibson, 2004).　　Much of current economics deals with a fundamental problem facing business owners: how to provide workers with appropriate incentives. A worker’s performance can be difficult to observe (Akerlof, 2010). To do so, firms typically use subjective performance evaluations to provide employees with incentives and feedback. Subjective evaluations with incentive effects can be maintained even without repeated interactions because an objective measure of performance is insufficient to observe it. Although complete efficiency cannot wholly be achieved, a firm can sustain compulsory evaluations and hire a range of employees to maximize efficiency. Compulsory evaluations are used if the labor population is small and objective measurement is ineffective (Zábojník, 2014).　　Workers compete in a tournament for a prize (i.e., a promotion) and often perform sequentially in multiple stages (Costa, 1988; Goltsman, 2011). In any case, the firm is privately informed about the workers’ performance and it can refine incentives by strategically disclosing the intermediate results. However, it is worth noting policies that enhance final-stage efforts may dampen incentives at the intermediate stage (Goltsman, 2011). The manager is acquired to have all bargaining power, and many risk-neutral firms compete for their expertise (Costa, 1988). The decision rule is associated with various models of economic fluctuation and the exploration of the implications of the experimental investigation of dynamic decision-making in aggregate systems (Sterman, 1989).

4. Tournament Theory　　Tournament theory originated in the labor economics literature over 30 years ago (Lazear and Rosen, 1981). It expanded to a wide range of other disciplines, such as law (Anabtawi, 2005), ecology (Zabel and Roe, 2009), psychology (Nieken and Sliwka, 2010), and finance (Kale, Reis, and Venkateswaran, 2009).　　The conceptualization of tournaments refers to contests in which actors compete for a prize that is awarded based on relative rank and is designed to incentivize an optimal level of effort

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(Becker and Huselid, 1992; Lazear, 1999). The prize is “optimal” when it maximizes the productive output of the tournament, including all participants (Lazear and Rosen, 1981; Knoeber, 1989; Knoeber and Thurman, 1994). If the prize spread (e.g., the difference between post- and pre-promotion wages) is too small, contestants will not be incentivized to compete and so the total productive output of the tournament plummets. A prize spread that is too high can also be detrimental because it stimulates so much effort that contestants must be broadly compensated, again reducing tournament efficiency. Tournament design, therefore, involves strategically choosing optimal prize spreads that maximize the productive output of the tournament. The key idea underlying tournament theory is that there are clear winners and losers (Connelly et al., 2014).

5. The Contribution of the Concept of Identity 　　This study incorporates the psychology and sociology of identity into an economic model of behavior. It compares the HR/management personnel systems and job markets between Indonesian and Japanese companies. The game-theoretical model is based on it. The data are derived from field research, interviews, empirical methods, and qualitative methods.　　Indonesia was selected because it is the largest economy in Southeast Asia and the world’s fourth most populous nation with a diverse archipelago inhabited by over 300 ethnic groups. Impressive economic growth occurred in Indonesia while overcoming the Asian financial crisis of the late 1990s and it has become an emerging middle-income country. Indonesia’s GDP per capita has successfully grown from $857 to $3,847 between 2000 and 2017. Indonesia, as a member of G-20 and the world’s 10th largest economy in terms of purchasing power parity, has made vast advances in poverty reduction, with a rate of over 50% in 1999 to 9.8% in 2018.　　The Rencana Pembangunan Jangka Menengah Nasional (RPJMN), Indonesia’s economic plan, extends across 5-year medium-term plans and different development priorities with a 20-year development plan from 2005 to 2025. Currently, the third phase of the long-term plan from 2015 to 2020 concentrates on infrastructure development and social assistance programs related to education and healthcare. Such shifts in public spending have been enabled by the reform of long-standing energy subsidies, allowing for more investments in programs that directly affect the poor and near-poor (World Bank, 2020).　　Examining Indonesia’s position in the new world requires a broad understanding of the extent to which the state and people engage with the many dimensions of globalization, nationalism, and sovereignty. Geographic and historical features are arguably particularly important. For example, considering the best approach to trade and international affairs, policymakers should take heed of Indonesia’s archipelagic nature that makes the country an unlikely place for mercantilist exclusivity. Globalization today is more complicated than ever and Indonesia needs to increase its engagement with the international economic architecture (Patunru, 2018).

6. Conclusions　　This paper conducted an analysis of the contributions made by ideas from the concept of identity on behavioral economic models and human resources concepts from tournament theory.

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One indicator of the importance of HR in organizations is its ability to align organizational competencies and execute organizational strategies. The importance of incorporating the psychology and sociology of HR identity into a behavioral economic model was emphasized. Future work should focus on creating a game-theoretical model that compares the HR management personnel systems and job markets of Indonesian and Japanese companies.

Acknowledgments　　This work was supported by the Ministry of Education, Culture, Sports, Science, and Technology (MEXT) of Japan, with Doctoral Scholarship No. 205042 for 2018–2021.　　The author expresses sincere gratitude for the kind support from and discussions with Prof. Djamaludin Ancok, Former Professor of Psychology at the Universitas Gadjah Mada, Indonesia and Director of Graduate School of Psychology at the Universitas Gunadarma, Indonesia.

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