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Strive to be first or avoid being last: An experiment on relative performance incentives

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  • Dutcher, E. Glenn
  • Balafoutas, Loukas
  • Lindner, Florian
  • Ryvkin, Dmitry
  • Sutter, Matthias

Abstract

We utilize a laboratory experiment to compare effort provision under optimal tournament contracts with different distributions of prizes which motivate agents to compete to be first, avoid being last, or both. We find that the combined tournament contract incorporating both incentives at the top and at the bottom induces the highest effort, especially in larger groups. Avoiding being last produces the lowest variance of effort and is more effective at motivating employees compared to competing for the top.

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  • Dutcher, E. Glenn & Balafoutas, Loukas & Lindner, Florian & Ryvkin, Dmitry & Sutter, Matthias, 2015. "Strive to be first or avoid being last: An experiment on relative performance incentives," Games and Economic Behavior, Elsevier, vol. 94(C), pages 39-56.
  • Handle: RePEc:eee:gamebe:v:94:y:2015:i:c:p:39-56
    DOI: 10.1016/j.geb.2015.08.008
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    More about this item

    Keywords

    Tournament; Winner; Loser; Contract; Experiment; Learning;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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