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Tournaments, Risk Perceptions, And Fairness

  • Wu, Steven Y.
  • Roe, Brian E.

This paper reports the results of an economic experiment investigating human subjects’' preferences for two types of contracts – tournaments and fixed performance standard contracts. Willingness to pay data was elicited through an auction and results suggest that subjects prefer fixed performance standard contracts to tournaments. Primary drivers of this result appear to be subjects’' perceptions that tournaments are more risky and less fair than fixed performance standard contracts. Surprisingly, measures of the relative profitability of the contracts did not correlate with willingness to pay. Our results can shed light on why agricultural producers express frustration over tournaments and can provide insights on contract and policy design.

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File URL: http://purl.umn.edu/20154
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2004 Annual meeting, August 1-4, Denver, CO with number 20154.

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Date of creation: 2004
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Handle: RePEc:ags:aaea04:20154
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  1. 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.
  2. Schotter, Andrew & Weigelt, Keith, 1990. "Asymmetric Tournaments, Equal Opportunity Laws And Affirmative Action: Some Experimental Result," Working Papers 90-14, C.V. Starr Center for Applied Economics, New York University.
  3. Ernst Fehr & Simon Gaechter, . "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
  4. Noussair, Charles N & Plott, Charles R & Riezman, Raymond G, 1995. "An Experimental Investigation of the Patterns of International Trade," American Economic Review, American Economic Association, vol. 85(3), pages 462-91, June.
  5. James Andreoni & Marco Castillo & Ragan Petrie, 2003. "What Do Bargainers' Preferences Look Like? Experiments with a Convex Ultimatum Game," American Economic Review, American Economic Association, vol. 93(3), pages 672-685, June.
  6. Brent Hueth & Ethan Ligon, 2001. "Agricultural Markets as Relative Performance Evaluation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 318-328.
  7. Selten, Reinhard & Abdolkarim Sadrieh & Klaus Abbink, 1995. "Money does Not Induce Risk Neutral Behavior, but Binary Lotteries Do even Worse," Discussion Paper Serie B 343, University of Bonn, Germany.
  8. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  9. Berg, Joyce E, et al, 1986. "Controlling Preferences for Lotteries on Units of Experimental Exchange," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 281-306, May.
  10. 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.
  11. Vital Anderhub & Simon Gaechter & Manfred Koenigstein, . "Efficient Contracting and Fair Play in a Simple Principal-Agent Experiment," IEW - Working Papers 018, Institute for Empirical Research in Economics - University of Zurich.
  12. Werner Güth & Hartmut Kliemt & Axel Ockenfels, . "Fairness Versus Efficiency - An Experimental Study of (Mutual) Gift Giving -," Papers on Strategic Interaction 2002-40, Max Planck Institute of Economics, Strategic Interaction Group.
  13. Tsoulouhas, Theofanis & Vukina, Tomislav, 2000. "Regulating Broiler Contracts: Tournaments Versus Fixed Performance Standards," 2000 Annual meeting, July 30-August 2, Tampa, FL 21833, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 2001. "Reciprocity as a Contract Enforcement Device," Levine's Working Paper Archive 563824000000000143, David K. Levine.
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