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|
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- 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 841-64, October.
- Green, Jerry R & Stokey, Nancy L, 1983.
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Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 349-64, June.
- Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
- Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
- Konrad, Kia A. & Kovenock, Dan, 2006.
"Multi-Stage Contests with Stochastic Ability,"
Purdue University Economics Working Papers
1192, Purdue University, Department of Economics.
- 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.
- Theofanis Tsoulouhas & Charles Knoeber & Anup Agrawal, 2007.
"Contests to become CEO: incentives, selection and handicaps,"
Springer, vol. 30(2), pages 195-221, February.
- 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.
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