Tournaments with Ex Post Heterogeneous Agents
This paper compares relative performance evaluation via tournaments to absolute performance evaluation via piece rates when agents are heterogeneous ex post, to make the point that agent heterogeneity compromises the insurance function of tournaments. In particular, we show that the more heterogeneous agents are the less insurance can be offered through tournaments and the less dominant tournaments are over piece rates. Thus, absolute performance piece rates should be preferred when agents are highly heterogeneous. However, even with heterogeneous agents, tournaments become more desirable when the number of agents or the uncertainty about the common shock increases sufficiently.
|Date of creation:||May 2007|
|Date of revision:||Oct 2007|
|Note:||First draft 2007-05|
|Contact details of provider:|| Phone: (919) 515-3274|
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- Theofanis Tsoulouhas & Charles R. Knoeber & Anup Agrawal, .
"Contests to Become CEO: Incentives, Selection and Handicaps,"
Working Paper Series
002, North Carolina State University, Department of Economics, revised Jul 2004.
- Theofanis Tsoulouhas & Charles Knoeber & Anup Agrawal, 2007. "Contests to become CEO: incentives, selection and handicaps," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(2), pages 195-221, February.
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Journal of Political Economy,
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- Bhattacharya, Sudipto & Guasch, J Luis, 1988. "Heterogeneity, Tournaments, and Hierarchies," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 867-81, August.
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