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An envelope approach to tournament design


Ewerhart, Christian (2015). An envelope approach to tournament design. Working paper series / Department of Economics 184, University of Zurich.

Abstract

Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.

Abstract

Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C62, D86, L23
Uncontrolled Keywords:Rank-order tournaments, first-order approach, envelope theorem
Language:English
Date:October 2015
Deposited On:06 Jan 2015 15:34
Last Modified:14 Feb 2018 08:47
Series Name:Working paper series / Department of Economics
Number of Pages:32
ISSN:1664-7041
Additional Information:Revised version
OA Status:Green
Official URL:http://www.econ.uzh.ch/static/wp/econwp184.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers-new.php
http://www.zora.uzh.ch/115858/

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