On the Incentive Effects of Sample Size in Monitoring Agents – A Theoretical and Experimental Analysis

Avrahami Judith, Kareev Yaakov, Tobias Uske and Gueth Werner
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Avrahami Judith: The Hebrew University of Jerusalem,Ierusalim, Israel
Kareev Yaakov: The Hebrew University of Jerusalem,Ierusalim, Israel
Gueth Werner: LUISS Guido Carli, Max Planck Institute for Research on Collective Goods and Frankfurt School of Finance and Management,Frankfurt pe Main, Germany

German Economic Review, 2017, vol. 18, issue 1, 81-98

Abstract: When agents compete for a bonus and their productivity in each of several possible occasions depends stochastically on (constant) effort, the number of times this is checked to assign the bonus affects the level of uncertainty in the selection process. Uncertainty, in turn, is expected to increase the effort made by competing agents (Cowen and Glazer, 1996; Dubey and Haimanko, 2003; Dubey and Wu, 2001). Theoretical predictions are derived and experimental evidence is collected for two competing agents, with the bonus awarded to that agent who outperforms the other. Sampling occasions (1 or 3), cost of production (high or low), cost symmetry (asymmetric or symmetric), and piece-rate reward are manipulated factorially to test the robustness of the effects of uncertainty. For control, a single-agent case is included. Results indicate that, for tournaments, greater uncertainty does indeed lead to greater than expected effort and lower average variable costs.

Keywords: Monitoring; tournament; incentives; uncertainty; stochastic production technology (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1111/geer.12091

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