Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments
Werner Güth (),
René Levínský (),
Kerstin Pull and
Ori Weisel ()
Review of Economic Design, 2016, vol. 20, issue 1, No 4, 69-88
Abstract Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce ‘output-dependent prizes’ where the tournament prize is endogenously determined by agents’ output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.
Keywords: Tournaments; Relative performance; Experiment; Principal-agent (search for similar items in EconPapers)
JEL-codes: J3 L2 (search for similar items in EconPapers)
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