IDEAS home Printed from https://ideas.repec.org/a/bpj/germec/v5y2004i1p103-116.html
   My bibliography  Save this article

Risk Taking in Asymmetric Tournaments

Author

Listed:
  • Kräkel Matthias

    (University of Bonn,Boon, Germany)

Abstract

A tournament is examined in which two agents with different abilities choose efforts as well as risks. According to the previous literature, the more (less) able agent should choose a low (high) risk strategy, because the first one does not want to imperil his favorable position, whereas the last one can only gain by increasing risk. We show that this is not necessarily true. Risk taking affects equilibrium efforts as well as winning probabilities. Depending on both effects diverse equilibria are possible. For example, the low and the high ability agent may both choose high risks or both choose low risks.

Suggested Citation

  • Kräkel Matthias, 2004. "Risk Taking in Asymmetric Tournaments," German Economic Review, De Gruyter, vol. 5(1), pages 103-116, February.
    • Handle: RePEc:bpj:germec:v:5:y:2004:i:1:p:103-116
    DOI: 10.1111/j.1465-6485.2004.00096.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-6485.2004.00096.x
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1111/j.1465-6485.2004.00096.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    3. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
    4. Knoeber, Charles R & Thurman, Walter N, 1994. "Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 155-179, April.
    5. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    6. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 921-955.
    7. Hoffler, Felix & Sliwka, Dirk, 2003. "Do new brooms sweep clean? When and why dismissing a manager increases the subordinates' performance," European Economic Review, Elsevier, vol. 47(5), pages 877-890, October.
    8. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    9. Ronald G. Ehrenberg & Michael L. Bognanno, 1990. "The Incentive Effects of Tournaments Revisited: Evidence from the European PGA Tour," ILR Review, Cornell University, ILR School, vol. 43(3), pages 74, April.
    10. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-143, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2015. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 521-569.
    2. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    3. Bingley, P. & Eriksson, T, 2001. "Pay Spread and Skewness. Employee Effort and Firm Productivity," Papers 01-2, Aarhus School of Business - Department of Economics.
    4. Tor Eriksson & Sabrina Teyssier & Marie‐Claire Villeval, 2009. "Self‐Selection And The Efficiency Of Tournaments," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 530-548, July.
    5. Kräkel, Matthias, 2004. "Emotions and Incentives," IZA Discussion Papers 1270, Institute of Labor Economics (IZA).
    6. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    7. Kräkel, Matthias, 2004. "Tournaments versus Piece Rates under Limited Liability," Bonn Econ Discussion Papers 8/2004, University of Bonn, Bonn Graduate School of Economics (BGSE).
    8. Carr, Michael D., 2011. "Work hours and wage inequality: Evidence from the 2004 WERS," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 417-427, August.
    9. Kräkel, Matthias, 2005. "Emotions and the Optimality of Unfair Tournaments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 45, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    10. Jennifer Brown, 2011. "Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars," Journal of Political Economy, University of Chicago Press, vol. 119(5), pages 982-1013.
    11. Bernd Frick, 2003. "Contest Theory and Sport," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(4), pages 512-529, Winter.
    12. Michael T. Maloney & Robert E. McCormick, 2000. "The Response of Workers to Wages in Tournaments," Journal of Sports Economics, , vol. 1(2), pages 99-123, May.
    13. P.-J. Jost & M. Kräkel, 2005. "Preemptive behavior in sequential-move tournaments with heterogeneous agents," Economics of Governance, Springer, vol. 6(3), pages 245-252, November.
    14. Kräkel, Matthias, 2008. "Emotions in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 204-214, July.
    15. Kato, Takao & Long, Cheryl, 2011. "Tournaments and managerial incentives in China's listed firms: New evidence," China Economic Review, Elsevier, vol. 22(1), pages 1-10, March.
    16. Dmitry Ryvkin & Andreas Ortmann, 2008. "The Predictive Power of Three Prominent Tournament Formats," Management Science, INFORMS, vol. 54(3), pages 492-504, March.
    17. Ozbeklik, Serkan & Smith, Janet Kiholm, 2017. "Risk taking in competition: Evidence from match play golf tournaments," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 506-523.
    18. Gürtler, Oliver & Kräkel, Matthias, 2010. "Optimal tournament contracts for heterogeneous workers," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 180-191, August.
    19. Benny Moldovanu & Aner Sela, 2008. "The Optimal Allocation of Prizes in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 615-631, Springer.
    20. Nieken, Petra & Stegh, Michael, 2010. "Incentive Effects in Asymmetric Tournaments Empirical Evidence from the German Hockey League," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 305, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    21. Tor Eriksson & Sabrina Teyssier & Marie Claire Villeval, 2006. "Effort Self-Selection and the Efficiency of Tournaments," Post-Print halshs-00142876, HAL.

    More about this item

    Keywords

    Effort effect; likelihood effect; risk taking; tournament;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:germec:v:5:y:2004:i:1:p:103-116. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.