Self-Selection and the Efficiency of Tournaments

Tor Eriksson, Sabrina Teyssier and Marie Claire Villeval

No 1983, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: When exogenously imposed, rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter, and Weigelt 1987). However, since the efficiency of performance-related pay is attributable both to its incentive effect and to its selection effect among employees (Lazear, 2000), it is important to investigate the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on risk aversion, sorting is efficiency-enhancing since it increases the homogeneity of the contestants. We suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay.

Keywords: tournament; performance pay; experiment; sorting; selection; incentives (search for similar items in EconPapers)
JEL-codes: C81 C91 J31 J33 M52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2006-02
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published - revised version published in: Economic Inquiry, 2009, 47(3), 530-548.

Downloads: (external link)
https://docs.iza.org/dp1983.pdf (application/pdf)

Related works:
Journal Article: SELF‐SELECTION AND THE EFFICIENCY OF TOURNAMENTS (2009)
Working Paper: Self-selection and the Efficiency of Tournaments (2009)
Working Paper: Self-Selection and the Efficiency of Tournaments (2006)
Working Paper: Self-Selection and the Efficiency of Tournaments (2006)
Working Paper: Self-selection and the Efficiency of Tournaments (2006)
Working Paper: Self-selection and the Efficiency of Tournaments (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp1983

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().