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Tournaments with price-setting agents

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  • Eriksen, Kristoffer

    (University of Stavanger)

  • Kvaløy, Ola

    ()
    (University of Stavanger)

  • Olsen, Trond

    (Norwegian School of Economics and Business Administration)

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

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/5.

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Length: 31 pages
Date of creation: 02 Sep 2008
Date of revision:
Handle: RePEc:hhs:stavef:2009_005

Contact details of provider:
Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Keywords: Tournaments;

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  1. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
  2. Riis, Christian, 2008. "Efficient Contests," MPRA Paper 10906, University Library of Munich, Germany.
  3. Christine Harbring & Bernd Irlenbusch, 2005. "Incentives in Tournaments with Endogenous Prize Selection," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 161(4), pages 636-, December.
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  14. Uri Gneezy & Muriel Niederle & Aldo Rustichini, 2003. "Performance In Competitive Environments: Gender Differences," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(3), pages 1049-1074, August.
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Cited by:
  1. Eriksen, Kristoffer & Kvaløy, Ola, 2012. "Myopic Risk Taking in Tournaments," UiS Working Papers in Economics and Finance, University of Stavanger 2012/13, University of Stavanger.
  2. Filippin, A. & Crosetto, P., 2014. "A reconsideration of gender differences in risk attitudes," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 2014-01, Grenoble Applied Economics Laboratory (GAEL).

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