Advanced Search
MyIDEAS: Login

Tournaments and Piece Rates Revisited: A Theoretical and Experimental Study of Premium Incentives

Contents:

Author Info

  • Werner Güth

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group)

  • Rene Levínský

    (Max Planck Institute of Economics, Strategic Interaction Group)

  • Kerstin Pull

    (Eberhard Karls Universität Tübingen, Faculty of Economics and Business Administration)

  • Ori Weisel

    (The Hebrew University, Center for the Study of Rationality)

Abstract

Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments, i.e., on tournaments where the prize or prize sum to be awarded is set in advance, we introduce a new type of tournament into the literature: premium incentives. While premium incentives, just like fixed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the firm's success: the prize is high if the firm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform fixed-prize tournaments as well as piece rates. Our theoretical result is qualitatively confirmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2010_039.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2010-039.

as in new window
Length:
Date of creation: 23 Jun 2010
Date of revision:
Handle: RePEc:jrp:jrpwrp:2010-039

Contact details of provider:
Postal: Carl-Zeiss-Strasse 3, 07743 JENA
Phone: +049 3641/ 9 43000
Fax: +049 3641/ 9 43000
Web page: http://www.jenecon.de
More information through EDIRC

Related research

Keywords: Tournaments; Incentives; Economic experiments;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Werner Güth & Kerstin Pull & Manfred Stadler, 2009. "Intra-firm Conflicts and Interfirm Competition," Jena Economic Research Papers 2009-007, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2010-039. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.