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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
    DOI: 10.22004/ag.econ.21938
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    References listed on IDEAS

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