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Incentives in Tournaments with Endogenous Prize Selection

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  • Christine Harbring
  • Bernd Irlenbusch

Abstract

Tournament incentive schemes offer payments dependent on relative performance and are intended thereby to motivate agents to exert productive effort. Unfortunately, however, an agent may also be tempted to degrade the production of his competitors in order to improve the own relative position. We investigate whether this sabotage problem is mitigated in a repeated interaction between the agents and the principal. As sabotage can hardly be observed in real-world organizations, we employ a controlled experiment. Our data provide clear evidence that agents' behavior is not only guided by competition between agents but also by the possibility of punishing the principal via sabotage.

Suggested Citation

  • Christine Harbring & Bernd Irlenbusch, 2005. "Incentives in Tournaments with Endogenous Prize Selection," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(4), pages 636-663, December.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_636:iitwep_2.0.tx_2-x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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