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Performance And Welfare Effects Of Tournament Contracts: Some Experimental Evidence

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  • Wu, Steven Y.
  • Roe, Brian E.

Abstract

Using experimental economics, we compare the efficiency and welfare effects of tournament and fixed standards contracts. Our findings suggest that economic agents are generally better off under fixed standard contracts unless they face substantial common shocks. Administrators of contracts (principals) also tend to be better off under fixed standard contracts for moderate to small common shocks. Efficiency wise, agents tend to exert higher effort under fixed standard contracts. Moreover, effort under tournaments appears to be declining in the variance of the common shock. Our results suggest that a ban on tournament contracts may generally be better off for both growers and processors except in cases where common shocks are large.

Suggested Citation

  • Wu, Steven Y. & Roe, Brian E., 2003. "Performance And Welfare Effects Of Tournament Contracts: Some Experimental Evidence," 2003 Annual meeting, July 27-30, Montreal, Canada 21938, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea03:21938
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    File URL: http://ageconsearch.umn.edu/record/21938/files/sp03wu02.pdf
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    References listed on IDEAS

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    1. Ledyard, John O., "undated". "Public Goods: A Survey of Experimental Research," Working Papers 861, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Andrew Schotter & Keith Weigelt, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 511-539.
    3. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
    4. Cason, Timothy N. & Plott, Charles R., 1996. "EPA's New Emissions Trading Mechanism: A Laboratory Evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 133-160, March.
    5. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821.
    6. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
    7. Armando Levy & Tomislav Vukina, 2004. "The League Composition Effect in Tournaments with Heterogeneous Players: An Empirical Analysis of Broiler Contracts," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 353-378, April.
    8. Eckel, Catherine & Lutz, Nancy, 2003. "Introduction: What Role Can Experiments Play in Research on Regulation?," Journal of Regulatory Economics, Springer, vol. 23(2), pages 103-107, March.
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    Keywords

    Agribusiness;

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