Incentives and motivation in dynamic contests

Arnd Heinrich Klein and Armin Schmutzler

Journal of Economic Behavior & Organization, 2021, vol. 189, issue C, 194-216

Abstract: This paper uses a contest setting to analyze the provision of intertemporal incentives in organizations. Should a principal repeatedly award small prizes or give a large prize that takes past performance into account? A simple theoretical model predicts higher efforts in the latter case. An experiment confirms this prediction, but the size of the effect is smaller than expected. This result reflects two observations of independent interest. First, there is a revenge effect for laggards in repeated contests: Laggards exert higher efforts than leaders with the same first-period effort level. Second, there is an intimidation effect for laggards in the single-prize case: Laggards exert lower efforts than leaders with the same first-period effort level. Moreover, we observe polarization in laggard behavior.

Keywords: Dynamic contests; Rank-order tournaments; Incentive systems; Intimidation effect; Revenge effect; Experiments (search for similar items in EconPapers)
JEL-codes: D20 M51 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:189:y:2021:i:c:p:194-216

DOI: 10.1016/j.jebo.2021.06.023

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