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Behavioral and Welfare Effects of Tournaments and Fixed Performance Standard Contracts with Heterogeneous Agents: Some Experimental Evidence

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  • Wu, Steven Y.
  • Nazaryan, Natalie
  • Roe, Brian E.
  • Sporleder, Thomas L.

Abstract

Experimental economics is used to compare tournaments (T) and fixed performance contracts (F) when agents have heterogeneous costs. Our primary findings were: (1) There is no statistical difference in average pooled effort (effort by high ability and low ability subjects are pooled together to get an aggregate average) under T and F contracts, (2) on average, effort exerted by high ability agents is considerably higher than effort exerted by low ability agents under both types of contracts, (3) average pooled payoff for the subjects is affected by the type of contract used. Statistical analysis of the results revealed that high ability subjects generally benefit from tournaments whereas low ability agents are harmed by tournaments. Only in the case where common shocks are dominant would low ability agents not be negatively impacted by tournaments.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 20103.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:20103

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Keywords: Research Methods/ Statistical Methods;

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  1. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821.
  2. Steven Wu & Brian Roe, 2005. "Behavioral and Welfare Effects of Tournaments and Fixed Performance Contracts: Some Experimental Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 130-146.
  3. Schotter, Andrew & Weigelt, Keith, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 511-39, May.
  4. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  5. Theofanis Tsoulouhas & Tomislav Vukina, 2001. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 1062-1073.
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