Tournaments with gaps

Lorens Imhof and Matthias Kräkel

Economics Letters, 2014, vol. 122, issue 2, 211-214

Abstract: A standard tournament contract specifies only tournament prizes. If agents’ performance is measured on a cardinal scale, the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the winner prize. We analyze a tournament with two risk averse agents. Under unlimited liability, the principal strictly benefits from a gap by partially insuring the agents and thereby reducing labor costs. If the agents are protected by limited liability, the principal sticks to the standard tournament.

Keywords: Contest; Contract; Moral hazard; Risk aversion; Unlimited liability (search for similar items in EconPapers)
JEL-codes: C72 D86 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:2:p:211-214

DOI: 10.1016/j.econlet.2013.11.018

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