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The Adverse Consequences of Tournaments: Evidence from a Field Experiment

Author

Listed:
  • De Paola, Maria

    () (University of Calabria)

  • Gioia, Francesca

    () (University of Edinburgh)

  • Scoppa, Vincenzo

    () (University of Calabria)

Abstract

We run a field experiment to investigate whether competing in rank-order tournaments with different prize spreads affects individual performance. Our experiment involved students from an Italian University who took an intermediate exam in which one part was awarded on the basis of their relative performance. Students were matched in pairs on the basis of their high school grades and each pair was randomly assigned to one of three different tournaments. Random assignment neutralizes selection effects and allows us to investigate if larger prize spreads increase individual effort. We do not find any positive effect of larger prizes on students' performance and in several specifications we do find a negative effect. Furthermore, we show that the effect of prize spreads on students' performance depends on their degree of risk- aversion: competing in tournaments with large spreads negatively affects the performance of risk-averse students, while it does not produce any effect on students who are more prone to take risks.

Suggested Citation

  • De Paola, Maria & Gioia, Francesca & Scoppa, Vincenzo, 2016. "The Adverse Consequences of Tournaments: Evidence from a Field Experiment," IZA Discussion Papers 9854, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9854
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    More about this item

    Keywords

    rank-order tournaments; incentives; prize spread; risk-aversion; randomized experiment;

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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