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Tournaments with prize-setting agents

Author

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  • Eriksen, Kristoffer W.

    (Norwegian School of Hotel Management, Dept. of Business Administration, University of Stavanger)

  • Kvaløy, Ola

    (Norwegian School of Hotel Management, Dept. of Business Administration, University of Stavanger)

  • Olsen, Trond E.

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

In many tournaments it is the contestants themselves who determine reward allocation. Labor-union members bargain over wage distribution, and many firms allow self-managed teams to freely determine internal resource allocation, incentive structure, and division of labour. We analyze, and test experimentally, a rank-order tournament where heterogenous agents determine the spread between winner prize and looser prize. We investigate the relationship between prize spread, uncertainty (i.e. noise between e¤ort and performance), heterogeneity and effort. The paper challenges well-known results from tournament theory. We find that a large prize spread is associated with low degree of uncertainty and high degree of heterogeneity, and that heterogeneity triggers effort. By and large, our real-effort experiment supports the theoretical predictions.

Suggested Citation

  • Eriksen, Kristoffer W. & Kvaløy, Ola & Olsen, Trond E., 2008. "Tournaments with prize-setting agents," Discussion Papers 2008/23, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2008_023
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    File URL: http://hdl.handle.net/11250/164122
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    Cited by:

    1. Filippin, Antonio & Crosetto, Paolo, 2014. "A Reconsideration of Gender Differences in Risk Attitudes," IZA Discussion Papers 8184, Institute of Labor Economics (IZA).
    2. Eriksen, Kristoffer W. & Kvaløy, Ola, 2014. "Myopic risk-taking in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 37-46.
    3. Martin Grossmann, 2021. "Entry regulations and optimal prize allocation in parallel contests," Review of Economic Design, Springer;Society for Economic Design, vol. 25(4), pages 289-316, December.
    4. Graff, Frederik & Grund, Christian & Harbring, Christine, 2021. "Competing on the Holodeck - The effect of virtual peers and heterogeneity in dynamic tournaments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 90(C).
    5. Eriksen, Kristoffer W & Kvaløy, Ola, 2015. "2015/01 No guts, no glory: An experiment on excessive risk-taking by Kristoffer W. Eriksen and Ola Kvaløy," UiS Working Papers in Economics and Finance 2015/1, University of Stavanger.

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    More about this item

    Keywords

    Rank-order tournament; prize spread; ability-difference;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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