benefit from incentivized performance. Studies have shown that competition within the workplace helps boost performance because employees value the idea of being better than the rest. Matching Workers and Jobs: Under Tournament Theory, workers are matched to their appropriate job. Firms with a tournament structure in the workplace are more likely to hire more competitive and highly-skilled workers, and firms with a workplace based structured around equity are more likely to hire less competitive and lower-skilled workers. Inequality within the Workplace: Workplaces that are based around a tournament structure are prone to creating an unequal working environment. If workers are paid based on their performance, it has the potential to leave some employees worse off than others. This type environment could also be more demotivating for under-performing workers and more motivating for over-achieving workers which results in a bigger payoff gap between the two types of workers over time. Unethical Behavior: A problem with competition in a workplace is that it is prone to promoting unethical behavior within employees. As they are competing against each other, they may succumb to inappropriate actions that can hurt another employee's standing within the company. Principal-Agent Problem The Principal-Agent Problem is based on the relationship between an employer (principal) and an employee (agent). In this case, the employer relies on their employees to maximize the firm’s utility. In practice, incentives are sometimes misaligned between the principal and the agent. This occurs due to differing goals between the two, this can lead to adverse selection for the principal when hiring an agent, they cannot fully evaluate an agent's skills and moral hazard for the agent when presented with more information than the principal. Approaches to Resolving Conflict Fixed payment with monitoring Fixed salaries are provided to agents while their performance is under observation. Disadvantages: Shirking, monitoring costs and adverse selection. Incentive pay without monitoring Payment is correlated with output and performance is not monitored. Disadvantages: Inequitable pay and compensation Shirking: No incentive to act in the best interest of the principal/firm because the agent is guaranteed pay. Monitoring Costs: Additional resources and costs to monitor and measure agent performance. Adverse Selection: Agents will look elsewhere for a job where performance is not as heavily monitored. Inequitable Pay: Prone to delays and interruptions, and unreasonable to punish agents for these issues. Compensation: Principals may have to provide agents a risk premium as agents bear a risk