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Optimal Allocation of Heterogeneous Agents in Contests

  • Martin Grossmann

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

  • Helmut Dietl

    ()

    (Institute for Strategy and Business Economics, University of Zurich)

In this paper, we discuss a manager's allocation problem. Two managers allocate their heterogeneous employees - each manager allocates two high types and two low types - in groups of two in order to compete for an exogenous contest prize in a two period model. There are three possibilities of groups' constellation depending on manager's allocation decision: Strong groups (two high types), balanced groups (one high and one low type) and weak groups (two low types). These allocations determine the managers’ performance. We show that equilibria in a simultaneous as well as in a sequential game only depend on the difference of the heterogeneous groups' outputs. Furthermore, we show that there is no second mover advantage according this model. Therefore, firms' performances are independent of the model's timing. A typical application of the model fits to coaches’ decisions in ice hockey concerning the optimal constellation of the first, second, third (and so forth) lines.

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File URL: http://repec.business.uzh.ch/RePEc/iso/ISU_WPS/71_ISU_full.pdf
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Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Working Papers with number 0071.

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Length: 26 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:iso:wpaper:0071
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  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  2. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 395-410, August.
  3. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  4. El-Hodiri, Mohamed & Quirk, James, 1971. "An Economic Model of a Professional Sports League," Journal of Political Economy, University of Chicago Press, vol. 79(6), pages 1302-19, Nov.-Dec..
  5. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
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