Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments

Werner Güth; René Levínský; Kerstin Pull; Ori Weisel

doi:https://doi.org/10.1007/s10058-015-0184-7

Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments

Werner Güth, René Levínský, Kerstin Pull, Ori Weisel

Research output: Contribution to journal › Article › peer-review

Abstract

Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce ‘output-dependent prizes’ where the tournament prize is endogenously determined by agents’ output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.

Original language	English
Pages (from-to)	69-88
Number of pages	20
Journal	Review of Economic Design
Volume	20
Issue number	1
DOIs	https://doi.org/10.1007/s10058-015-0184-7
State	Published - 1 Mar 2016
Externally published	Yes

Keywords

Experiment
Principal-agent
Relative performance
Tournaments

All Science Journal Classification (ASJC) codes

General Economics,Econometrics and Finance

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Cite this

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abstract = "Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce {\textquoteleft}output-dependent prizes{\textquoteright} where the tournament prize is endogenously determined by agents{\textquoteright} output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.",

keywords = "Experiment, Principal-agent, Relative performance, Tournaments",

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AU - Güth, Werner

AU - Levínský, René

AU - Pull, Kerstin

AU - Weisel, Ori

PY - 2016/3/1

Y1 - 2016/3/1

N2 - Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce ‘output-dependent prizes’ where the tournament prize is endogenously determined by agents’ output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.

AB - Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce ‘output-dependent prizes’ where the tournament prize is endogenously determined by agents’ output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.

KW - Experiment

KW - Principal-agent

KW - Relative performance

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M3 - مقالة

SN - 1434-4742

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EP - 88

JO - Review of Economic Design

JF - Review of Economic Design

IS - 1

ER -

Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments

Abstract

Keywords

All Science Journal Classification (ASJC) codes

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