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Discrimination and Strategic Group Division in Tournaments

Henrik Ballebye Olesen and Rene H. Olsen

No 24183, Unit of Economics Working Papers from Royal Veterinary and Agricultural University, Food and Resource Economic Institute

Abstract: The contracts we consider in this paper must solve three problems: moral hazard, insurance and discrimination. The moral hazard problem is that of providing the agents with incentives to perform in a way that maximizes the profit to the principal, when the agent's actions are unobservable. The insurance problem is that of minimizing the cost of risk through risk minimization and risk sharing. The issue of discrimination is that of paying agents with different skills sufficiently to participate, without overcompensating other agents. We show how the principal may benefit from a strategic division of the agents into different tournaments or groups. The optimal number of groups from the principal's point of view is determined through a trade-off between moral hazard, insurance and discrimination issues.

Keywords: Agribusiness (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ags:rvaewp:24183

DOI: 10.22004/ag.econ.24183

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