Tournaments with Ex Post Heterogeneous Agents

Theofanis Tsoulouhas and Kosmas Marinakis

No 15, Working Paper Series from North Carolina State University, Department of Economics

Abstract: This paper compares relative performance evaluation via tournaments to absolute performance evaluation via piece rates when agents are heterogeneous ex post, to make the point that agent heterogeneity compromises the insurance function of tournaments. In particular, we show that the more heterogeneous agents are the less insurance can be offered through tournaments and the less dominant tournaments are over piece rates. Thus, absolute performance piece rates should be preferred when agents are highly heterogeneous. However, even with heterogeneous agents, tournaments become more desirable when the number of agents or the uncertainty about the common shock increases sufficiently.

Keywords: piece rates; tournaments (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Date: 2007-05, Revised 2007-10
Note: First draft 2007-05
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Journal Article: Tournaments with Ex Post Heterogeneous Agents (2007)
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