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Splitting Tournaments

Author

Listed:
  • Leuven, Edwin

    (University of Oslo)

  • Oosterbeek, Hessel

    (University of Amsterdam)

  • van der Klaauw, Bas

    (Vrije Universiteit Amsterdam)

Abstract

In this paper we investigate how heterogeneous agents choose among tournaments with different prizes. We show that if the number of agents is sufficiently small, multiple equilibria can arise. Depending on how the prize money is split over the tournaments, these may include, for example, a perfect-sorting equilibrium in which high-ability agents compete in the high-prize tournament, while low-ability agents compete for the low prize. However, there are also equilibria in which agents follow a mixed strategy and there can be reverse sorting, i.e. low-ability agents are in the tournament with the high prize, while high-ability agents are in the low-prize tournament. We show that total effort always decreases compared to a single tournament. However, splitting the tournament may increase the effort of low-ability agents.

Suggested Citation

  • Leuven, Edwin & Oosterbeek, Hessel & van der Klaauw, Bas, 2010. "Splitting Tournaments," IZA Discussion Papers 5186, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp5186
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    References listed on IDEAS

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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 841-864, October.
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    More about this item

    Keywords

    self-selection; tournament; heterogeneous agents; social planner;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation

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