An envelope approach to tournament design

Christian Ewerhart

No 184, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.

Keywords: Rank-order tournaments; first-order approach; envelope theorem (search for similar items in EconPapers)
JEL-codes: C62 D86 L23 (search for similar items in EconPapers)
Date: 2014-12, Revised 2015-10
New Economics Papers: this item is included in nep-hrm, nep-mic and nep-upt
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Journal Article: An envelope approach to tournament design (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:184

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