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An envelope approach to tournament design


Ewerhart, Christian (2016). An envelope approach to tournament design. Journal of Mathematical Economics, 63:1-9.

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:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Economics and Econometrics
Physical Sciences > Applied Mathematics
Uncontrolled Keywords:Rank-order tournaments, first-order approach, envelope theorem
Language:English
Date:March 2016
Deposited On:17 Feb 2016 14:58
Last Modified:16 Sep 2020 13:46
Publisher:Elsevier
ISSN:0304-4068
OA Status:Hybrid
Publisher DOI:https://doi.org/10.1016/j.jmateco.2015.11.004
Related URLs:https://www.zora.uzh.ch/103965/

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