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

  • Delfgaauw, Josse

    ()

    (Erasmus University Rotterdam)

  • Dur, Robert

    ()

    (Erasmus University Rotterdam)

  • Non, Arjan

    ()

    (ROA, Maastricht University)

  • Verbeke, Willem

    ()

    (Erasmus University Rotterdam)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6480.

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Length: 49 pages
Date of creation: Apr 2012
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Handle: RePEc:iza:izadps:dp6480
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