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Incentive effects and overcrowding in tournaments: An experimental analysis

  • Donald Vandegrift

    ()

  • Abdullah Yavas

    ()

  • Paul Brown

    ()

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

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File URL: http://hdl.handle.net/10.1007/s10683-006-9138-9
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Article provided by Springer in its journal Experimental Economics.

Volume (Year): 10 (2007)
Issue (Month): 4 (December)
Pages: 345-368

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Handle: RePEc:kap:expeco:v:10:y:2007:i:4:p:345-368
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102888

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