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Tournaments with gaps

Listed author(s):
  • Imhof, Lorens
  • Kräkel, Matthias

A standard tournament contract specifies only tournament prizes. If agents’ 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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File URL: http://www.sciencedirect.com/science/article/pii/S0165176513005120
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 122 (2014)
Issue (Month): 2 ()
Pages: 211-214

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Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:211-214
DOI: 10.1016/j.econlet.2013.11.018
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  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. Imhof, Lorens & Kräkel, Matthias, 2014. "Bonus pools and the informativeness principle," European Economic Review, Elsevier, vol. 66(C), pages 180-191.
  3. James M. Malcomson, 1986. "Rank-Order Contracts for a Principal with Many Agents," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 807-817.
  4. Hisaki Kono & Nobuyuki Yagi, 2008. "Heterogeneous Contests And Less Informative Signals," The Japanese Economic Review, Japanese Economic Association, vol. 59(1), pages 113-126.
  5. Anja Schöttner, 2008. "Fixed-prize tournaments versus first-price auctions in innovation contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(1), pages 57-71, April.
  6. Gürtler, Oliver, 2011. "The first-order approach in rank-order tournaments," Economics Letters, Elsevier, vol. 111(3), pages 185-187, June.
  7. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-154, January.
  8. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-978, October.
  9. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
  10. 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.
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