Tournaments with prize-setting agents

Kristoffer W. Eriksen (), Ola Kvaløy and Trond Olsen
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Kristoffer W. Eriksen: Norwegian School of Hotel Management, Dept. of Business Administration, University of Stavanger, Postal: University of Stavanger, Department of Business Administration, Norwegian School of Hotel Management, 4036 Stavanger, Norway

No 2008/23, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: In many tournaments it is the contestants themselves who determine reward allocation. Labor-union members bargain over wage distribution, and many firms allow self-managed teams to freely determine internal resource allocation, incentive structure, and division of labour. We analyze, and test experimentally, a rank-order tournament where heterogenous agents determine the spread between winner prize and looser prize. We investigate the relationship between prize spread, uncertainty (i.e. noise between e¤ort and performance), heterogeneity and effort. The paper challenges well-known results from tournament theory. We find that a large prize spread is associated with low degree of uncertainty and high degree of heterogeneity, and that heterogeneity triggers effort. By and large, our real-effort experiment supports the theoretical predictions.

Keywords: Rank-order tournament; prize spread; ability-difference (search for similar items in EconPapers)
JEL-codes: C30 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2008-10-17
New Economics Papers: this item is included in nep-exp and nep-lab
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Related works:
Journal Article: Tournaments with Prize‐setting Agents (2011)
Working Paper: Tournaments with price-setting agents (2008)
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