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Tournaments with Prize‐setting Agents

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  • Kristoffer W. Eriksen
  • Ola Kvaløy
  • Trond E. Olsen

Abstract

In many tournaments it is the contestants themselves who determine reward allocation. Labor-union members bargain over wage distribution, and many firms allow self-managed teams to freely determine internal resource allocation, incentive structure, and division of labour. We analyze, and test experimentally, a rank-order tournament where heterogenous agents determine the spread between winner prize and looser prize. We investigate the relationship between prize spread, uncertainty (i.e. noise between e¤ort and performance), heterogeneity and effort. The paper challenges well-known results from tournament theory. We find that a large prize spread is associated with low degree of uncertainty and high degree of heterogeneity, and that heterogeneity triggers effort. By and large, our real-effort experiment supports the theoretical predictions.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 113 (2011)
Issue (Month): 3 (09)
Pages: 729-753

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Handle: RePEc:bla:scandj:v:113:y:2011:i:3:p:729-753

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Cited by:
  1. Filippin, Antonio & Crosetto, Paolo, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," IZA Discussion Papers 8184, Institute for the Study of Labor (IZA).
  2. Eriksen, Kristoffer W. & Kvaløy, Ola, 2014. "Myopic risk-taking in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 37-46.

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