Incentive effects and overcrowding in tournaments: An experimental analysis

Donald Vandegrift (), Abdullah Yavas () and Paul Brown ()

Experimental Economics, 2007, vol. 10, issue 4, 345-368

Abstract: This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool. Copyright Economic Science Association 2007

Keywords: Tournament; Overcrowding; Experiment; Incentive effects (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (22)

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DOI: 10.1007/s10683-006-9138-9

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