Testing Canonical Tournament Theory: On the Impact of Risk, Social Preferences and Utility Structure
AbstractWe use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal and agent are populated by human subjects, allowing us to test predictions for both incentive responses and optimal tournament design. Consistent with theory, we observed an incentive effect from raising the winner's prize. However, we also observed several empirical puzzles that appeared to contradict theory. Controlling for social preferences did not resolve the puzzles, although social preferences do influence behavior. It turns out that the puzzles can be explained by the canonical model once the textbook assumption of separable agent utility is relaxed.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6304.
Length: 66 pages
Date of creation: Jan 2012
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Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- M55 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Contracting Devices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-CBE-2012-02-20 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-02-20 (Experimental Economics)
- NEP-HRM-2012-02-20 (Human Capital & Human Resource Management)
- NEP-UPT-2012-02-20 (Utility Models & Prospect Theory)
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