A Comparison of Tournaments and Contracts
Jerry Green and
Scholarly Articles from Harvard University Department of Economics
Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk-neutral principal and many risk-averse agents. Each agent's output is a stochastic function of his effort level plus an additive shock term that is common to all the agents. The principal observes only the output levels of the agents. It is shown that, in the absence of a common shock, using optimal independent contracts dominates using the optimal tournament. Conversely, if the distribution of the common shock is sufficiently diffuse, using the optimal tournament dominates using optimal independent contracts. Finally, it is shown that for a sufficiently large number of agents, a principal who cannot observe the common shock but uses the optimal tournament does as well as one who can observe the shock and uses independent contracts.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (318) Track citations by RSS feed
Published in Journal of Political Economy
Downloads: (external link)
Journal Article: A Comparison of Tournaments and Contracts (1983)
Working Paper: A Comparison of Tournaments and Contracts (1982)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:3203644
Access Statistics for this paper
More papers in Scholarly Articles from Harvard University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().