Economics at your fingertips  

Tournaments and Piece Rates Revisited: A Theoretical and Experimental Study of Premium Incentives

Werner Güth (), René Levínský (), Kerstin Pull and Ori Weisel ()

No 2010-039, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments, i.e., on tournaments where the prize or prize sum to be awarded is set in advance, we introduce a new type of tournament into the literature: premium incentives. While premium incentives, just like fixed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the firm's success: the prize is high if the firm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform fixed-prize tournaments as well as piece rates. Our theoretical result is qualitatively confirmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems.

Keywords: Tournaments; Incentives; Economic experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 J33 (search for similar items in EconPapers)
Date: 2010-06-23
New Economics Papers: this item is included in nep-exp and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Jena Economics Research Papers from Friedrich-Schiller-University Jena
Bibliographic data for series maintained by Markus Pasche ().

Page updated 2023-12-04
Handle: RePEc:jrp:jrpwrp:2010-039