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The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment

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  • Delfgaauw, Josse

    () (Erasmus University Rotterdam)

  • Dur, Robert

    () (Erasmus University Rotterdam)

  • Non, Arjan

    () (ROA, Maastricht University)

  • Verbeke, Willem

    () (Erasmus University Rotterdam)

Abstract

We conduct a natural field experiment in a large retail chain to test basic predictions of tournament theory regarding prize spread and noise. A random subset of the 208 stores participates in two-stage elimination tournaments. Tournaments differ in the distribution of prize money across winners of the first and second round of the tournament. As predicted by theory, we find that a more convex prize spread increases performance in the second round at the expense of first-round performance, although the magnitude of these effects is small. Moreover, the treatment effect is significantly larger for stores that historically have relatively stable performance as compared to stores with more noisy performance.

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  • Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2012. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," IZA Discussion Papers 6480, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6480
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    Cited by:

    1. Yann Girard & Florian Hett, 2013. "Competitiveness in dynamic group contests: Evidence from combined field and lab data," Working Papers 1303, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 01 Apr 2013.
    2. Englmaier, Florian & Grimm, Stefan & Schindler, David & Schudy, Simeon, 2018. "The Effect of Incentives in Non-Routine Analytical Team Tasks - Evidence From a Field Experiment," Rationality and Competition Discussion Paper Series 71, CRC TRR 190 Rationality and Competition.
    3. Gosnell, Greer & Metcalfe, Robert & List, John A, 2016. "A new approach to an age-old problem: solving externalities by incenting workers directly," LSE Research Online Documents on Economics 84331, London School of Economics and Political Science, LSE Library.
    4. Lackner, Mario & Stracke, Rudi & Sunde, Uwe & Winter-Ebmer, Rudolf, 2015. "Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field," IZA Discussion Papers 9564, Institute of Labor Economics (IZA).
    5. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    6. Stracke, Rudi & Höchtl, Wolfgang & Kerschbamer, Rudolf & Sunde, Uwe, 2012. "Optimal Prizes in Dynamic Elimination Contests: An Experimental Analysis," Economics Working Paper Series 1208, University of St. Gallen, School of Economics and Political Science.
    7. Stracke, Rudi & Höchtl, Wolfgang & Kerschbamer, Rudolf & Sunde, Uwe, 2014. "Optimal prizes in dynamic elimination contests: Theory and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 102(C), pages 43-58.
    8. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    9. Hett, Florian, 2014. "Dynamic Contests with Feedback and Heterogeneity: Empirical Evidence from a Gaming App," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100494, Verein für Socialpolitik / German Economic Association.
    10. Bohnet, Iris & Saidi, Farzad, 2019. "Informational Inequity Aversion and Performance," Working Paper Series rwp19-008, Harvard University, John F. Kennedy School of Government.
    11. Bhattacharya, Puja & Rampal, Jeevant, 2019. "Contests within and between groups," Discussion Papers, Research Unit: Market Behavior SP II 2019-206, WZB Berlin Social Science Center.
    12. Delfgaauw, Josse & Dur, Robert & Souverijn, Michiel, 2017. "Team Incentives, Task Assignment, and Performance: A Field Experiment," IZA Discussion Papers 11228, Institute of Labor Economics (IZA).
    13. repec:eee:eecrev:v:98:y:2017:i:c:p:264-281 is not listed on IDEAS
    14. Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2014. "Dynamic incentive effects of relative performance pay: A field experiment," Labour Economics, Elsevier, vol. 28(C), pages 1-13.
    15. repec:eee:jeborg:v:159:y:2019:i:c:p:181-191 is not listed on IDEAS
    16. repec:eee:jeborg:v:161:y:2019:i:c:p:52-67 is not listed on IDEAS
    17. Stracke, Rudi & Kerschbamer, Rudolf & Sunde, Uwe, 2017. "Coping with complexity – Experimental evidence for narrow bracketing in multi-stage contests," European Economic Review, Elsevier, vol. 98(C), pages 264-281.
    18. Manthei, Kathrin & Sliwka, Dirk & Vogelsang, Timo, 2018. "Performance Pay and Prior Learning: Evidence from a Retail Chain," IZA Discussion Papers 11859, Institute of Labor Economics (IZA).
    19. Stracke, Rudi & Kerschbamer, Rudolf & Sunde, Uwe, 2015. "Prevalence and Determinants of Choice Bracketing - Experimental Evidence," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113092, Verein für Socialpolitik / German Economic Association.

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    Keywords

    field experiment; incentives; prize spread; elimination tournaments; performance measurement;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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