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Simultaneous- versus Sequential-Move Tournaments with Heterogeneous Agents

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  • Peter-J. Jost
  • Matthias Kräkel

Abstract

This paper extends the discussion of simultaneous-move tournaments by focusing on the analysis of heterogeneous instead of homogeneous contestants. We show that the principal will not implement first-best efforts even though the agents are risk neutral and not limited in wealth, and despite the principal being able to implement an efficient outcome. At a second step, we compare our results with the equilibrium findings for sequential-move tournaments. We show that agents’ strategic behavior differs significantly in the two setups. In the sequential-move tournament, an underdog can realize a first-mover advantage, but the underdog is never better off in the simultaneous-move tournament. We also discuss the principal’s preferences for the different types of tournaments.

Suggested Citation

  • Peter-J. Jost & Matthias Kräkel, 2006. "Simultaneous- versus Sequential-Move Tournaments with Heterogeneous Agents," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 58(4), pages 306-331, October.
  • Handle: RePEc:sbr:abstra:v:58:y:2006:i:4:p:306-331
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    Keywords

    Endogenous Ordering of Moves; Heterogeneous Agents; Rank-order Tournaments;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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