The optimal allocation of prizes in tournaments of heterogeneous agents
Loukas Balafoutas (),
Florian Lindner () and
Working Papers from Faculty of Economics and Statistics, Universität Innsbruck
Tournaments are widely used in organizations, explicitly or implicitly, to reward the best-performing employees, e.g., through promotion or bonuses, and/or to punish the worst-performing employees, e.g., through firing or unfavorable job assignments. We explore the impact of the allocation of prizes on the effectiveness of tournament incentive schemes. We show that while multiple prize allocation rules are equivalent when agents are symmetric in their ability, the equivalence is broken in the presence of heterogeneity. Under a wide range of conditions, punishment tournaments, i.e., tournaments that award a low prize to relatively few bottom performers, are optimal for the firm. The reason is that low-ability agents are discouraged less in punishment tournaments, and hence can be compensated less to meet their participation constraints.
Keywords: tournament; reward; punishment; contract; heterogeneous agents (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-cta and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12) Track citations by RSS feed
Downloads: (external link)
Journal Article: THE OPTIMAL ALLOCATION OF PRIZES IN TOURNAMENTS OF HETEROGENEOUS AGENTS (2017)
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:inn:wpaper:2012-08
Access Statistics for this paper
More papers in Working Papers from Faculty of Economics and Statistics, Universität Innsbruck Contact information at EDIRC.
Bibliographic data for series maintained by Janette Walde ().