EconPapers    
Economics at your fingertips  
 

A Comparison of Tournaments and Contracts

Jerry Green and Nancy L. Stokey

No 840, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk-neutral principal and many risk-averse agents. Each agents' output is a stochastic function of his effort level plus an additive shock term that is common to all the agents. The principal observes only the output levels of the agents. It is shown that in the absence of a common shock, using optimal independent contracts dominates using the optimal tournament. Conversely, if the distribution of the common shock is sufficiently diffuse, using the optimal tournament dominates using optimal independent contracts. Finally, it is shown that for a sufficiently large number of agents, a principal who cannot observe the common shock but uses the optimal tournament, does as well as one who can observe the shock and uses independent contracts.

Date: 1982-01
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Published as Green, Jerry R. and Nancy L. Stokey. "A Comparison of Tournaments and Contracts." Journal of Political Economy, Vol. 91, Vo. 3, (June 1983), pp. 349- 364.

Downloads: (external link)
http://www.nber.org/papers/w0840.pdf (application/pdf)

Related works:
Journal Article: A Comparison of Tournaments and Contracts (1983) Downloads
Working Paper: A Comparison of Tournaments and Contracts (1983) Downloads
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:0840

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0840

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().

 
Page updated 2014-09-05
Handle: RePEc:nbr:nberwo:0840