The nature of tournaments

Robert Akerlof () and Richard Holden

Economic Theory, 2012, vol. 51, issue 2, 289-313

Abstract: This paper characterizes the optimal way for a principal to structure a rank-order tournament in a moral hazard setting (as in Lazear and Rosen in J Polit Econ 89:841–864, 1981). We find that it is often optimal to give rewards to top performers that are smaller in magnitude than corresponding punishments to poor performers. The paper identifies four reasons why the principal might prefer to give larger rewards than punishments: (1) R is small relative to P (where R is risk aversion and P is absolute prudence); (2) the distribution of shocks to output is asymmetric and the asymmetry takes a particular form; (3) the principal faces a limited liability constraint; and (4) there is agent heterogeneity of a particular form. Copyright Springer-Verlag 2012

Keywords: Prizes; Tournaments; L22 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00199-010-0523-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
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: https://EconPapers.repec.org/RePEc:spr:joecth:v:51:y:2012:i:2:p:289-313

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-010-0523-4

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().