Tournaments with Gaps
AbstractA standard tournament contract specifies only tournament prizes. If agentsâ€™ performance is measured on a cardinal scale, the principal can complement the tournament contract by a gap which defines the minimum distance by which the best performing agent must beat the second best to receive the winner prize. We analyze a tournament with two risk averse agents. Under unlimited liability, the principal strictly benefits from a gap by partially insuring the agents and thereby reducing labor costs. If the agents are protected by limited liability, the principal sticks to the standard tournament.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 411.
Date of creation: 2013
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limited liability; moral hazard; risk aversion; tournament; unlimited liability;
Other versions of this item:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-CTA-2013-10-18 (Contract Theory & Applications)
- NEP-GTH-2013-10-18 (Game Theory)
- NEP-HRM-2013-10-18 (Human Capital & Human Resource Management)
- NEP-MIC-2013-10-18 (Microeconomics)
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