Competitive Prizes: When Less Scrutiny Induces More Effort

Pradeep Dubey and Chien-wei Wu
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Chien-wei Wu: SUNY at Stony Brook

No 1255, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We consider a principal who is keen to induce his agents to work at their maximal effort levels. To this end, he samples n days at random out of the T days on which they work, and awards a prize of B dollars to the most productive agent. The principal's policy (B,n) induces a strategic game Gamma(B,n) between the agents. We show that to implement maximal effort levels weakly (or, strongly) as a strategic equilibrium (or, as dominant strategies) in Gamma(B,n), at the least cost B to himself, the principal must choose a small sample size n. Thus less scrutiny by the principal induces more effort from the agents. The need for reduced scrutiny becomes more pronounced when agents have information of the history of past plays in the game. There is an inverse relation between information and optimal sample size. As agents acquire more information (about each other), the principal -- so to speak -- must "undo" this by reducing his information (about them) and choosing the sample size n even smaller.

Keywords: Competitive prizes; extensive form games; information patterns; strategic equilibria; optimal sample sizes (search for similar items in EconPapers)
JEL-codes: C72 D82 J41 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2000-05
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Published in Journal of Mathematical Economics (December 2001), 36(4): 311-336

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