Tournament Rewards and Risk Taking
AbstractThis article considers a Lazear-Rosen tournament model where agents can influence both the spread of their output distribution (risk taking) and its mean. The unique equilibrium induces excessive risk taking and a low level of effort. By modifying the tournament to give the highest prize to the agent with the "most moderate" output, a low level of risk taking and high level of effort can be sustained as an equilibrium. The first result can be useful to understand the Relative Performance Evaluation Puzzle of executive compensation, and the second result can be useful to understand puzzling workplace norms promoting mediocrity.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Labor Economics.
Volume (Year): 20 (2002)
Issue (Month): 4 (October)
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Web page: http://www.journals.uchicago.edu/JOLE/
Other versions of this item:
- Hvide, H.K., 1999. "Tournament Rewards and Risk Taking," Papers 32-99, Tel Aviv.
- Hans K. Hvide, 2000. "Tournament Rewards and Risk Taking," Econometric Society World Congress 2000 Contributed Papers 0163, Econometric Society.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
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