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Optimal effort incentives in dynamic tournaments

Listed author(s):
  • Klein, Arnd Heinrich
  • Schmutzler, Armin

This paper analyzes two-stage rank-order tournaments. To influence efforts in the two periods, a principal can use the intertemporal prize structure and the weight of first-period performance in the second-period prize. These two instruments implement different sets of effort vectors. We characterize the optimal combination of prizes and weights as a function of parameters. For large parameter regions, the principal should only give a second-period prize, but use positive first-period performance weights. This holds no matter whether efforts in different periods are perfect or imperfect substitutes and whether the principal gives feedback on performance or not. We also generalize existing results on whether giving feedback is beneficial for the principal.

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File URL: http://www.sciencedirect.com/science/article/pii/S0899825616000324
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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 103 (2017)
Issue (Month): C ()
Pages: 199-224

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Handle: RePEc:eee:gamebe:v:103:y:2017:i:c:p:199-224
DOI: 10.1016/j.geb.2016.02.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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