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Incentive effects and overcrowding in tournaments: An experimental analysis

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  • Donald Vandegrift
  • Abdullah Yavas
  • Paul Brown

Abstract

This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool. Copyright Economic Science Association 2007

Suggested Citation

  • Donald Vandegrift & Abdullah Yavas & Paul Brown, 2007. "Incentive effects and overcrowding in tournaments: An experimental analysis," Experimental Economics, Springer;Economic Science Association, vol. 10(4), pages 345-368, December.
  • Handle: RePEc:kap:expeco:v:10:y:2007:i:4:p:345-368
    DOI: 10.1007/s10683-006-9138-9
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    Cited by:

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    2. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    3. Migheli, Matteo, 2015. "Gender at work: Incentives and self-sorting," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 10-18.
    4. repec:uea:wcbess:13-11 is not listed on IDEAS
    5. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    6. Schüssler, Katharina, 2018. "The Influence of Overconfidence and Competition Neglect On Entry Into Competition," Rationality and Competition Discussion Paper Series 87, CRC TRR 190 Rationality and Competition.
    7. J. Atsu Amegashie, 2013. "Sabotage in Contests: An Overview," CESifo Working Paper Series 4422, CESifo.
    8. Zhengyang Bao & Andreas Leibbrandt, 2020. "Tournaments with Safeguards: A Blessing or a Curse for Women?," Monash Economics Working Papers 02-20, Monash University, Department of Economics.
    9. J. Stephen Ferris & Stanley L. Winer & Derek Olmstead, 2018. "A Dynamic Model of Political Party Equilibrium: The Evolution of ENP in Canada, 1870–2015," Carleton Economic Papers 18-04, Carleton University, Department of Economics, revised 31 Jul 2019.
    10. Herranz-Zarzoso, Noemí & Sabater-Grande, Gerardo, 2018. "Monetary incentives and self-chosen goals in academic performance: An experimental study," International Review of Economics Education, Elsevier, vol. 27(C), pages 34-44.
    11. Oliver Baumann & Nils Stieglitz, 2011. "Motivating Organizational Search," DRUID Working Papers 11-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    12. Kräkel, Matthias & Nieken, Petra, 2015. "Relative performance pay in the shadow of crisis," European Economic Review, Elsevier, vol. 74(C), pages 244-268.
    13. Marinakis, Kosmas & Tsoulouhas, Theofanis, 2013. "Are tournaments optimal over piece rates under limited liability for the principal?," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 223-237.
    14. Noemí Herranz-Zarzoso & Gerardo Sabater-Grande, 2016. "Financial incentives and academic performance: An experimental study," Working Papers 2016/18, Economics Department, Universitat Jaume I, Castellón (Spain).
    15. repec:elg:eechap:15325_9 is not listed on IDEAS
    16. Mürüvvet Büyükboyacı, 2016. "A Designer'S Choice Between Single-Prize And Parallel Tournaments," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1774-1789, October.
    17. Philip Brookins & Jennifer Brown & Dmitry Ryvkin, 2016. "Peer Information and Risk-taking under Competitive and Non-competitive Pay Schemes," NBER Working Papers 22486, National Bureau of Economic Research, Inc.
    18. So, Tony & Brown, Paul & Chaudhuri, Ananish & Ryvkin, Dmitry & Cameron, Linda, 2017. "Piece-rates and tournaments: Implications for learning in a cognitively challenging task," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 11-23.

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