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Optimal effort incentives in dynamic tournaments


Klein, Arnd Heinrich; Schmutzler, Armin (2017). Optimal effort incentives in dynamic tournaments. Games and Economic Behavior, 103:199-224.

Abstract

This paper analyzes two-stage rank-order tournaments. To influence efforts in the two periods, a principal can use the intertemporal prize structure and the weight of first-period performance in the second-period prize. These two instruments implement different sets of effort vectors. We characterize the optimal combination of prizes and weights as a function of parameters. For large parameter regions, the principal should only give a second-period prize, but use positive first-period performance weights. This holds no matter whether efforts in different periods are perfect or imperfect substitutes and whether the principal gives feedback on performance or not. We also generalize existing results on whether giving feedback is beneficial for the principal.

Abstract

This paper analyzes two-stage rank-order tournaments. To influence efforts in the two periods, a principal can use the intertemporal prize structure and the weight of first-period performance in the second-period prize. These two instruments implement different sets of effort vectors. We characterize the optimal combination of prizes and weights as a function of parameters. For large parameter regions, the principal should only give a second-period prize, but use positive first-period performance weights. This holds no matter whether efforts in different periods are perfect or imperfect substitutes and whether the principal gives feedback on performance or not. We also generalize existing results on whether giving feedback is beneficial for the principal.

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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
Uncontrolled Keywords:Dynamic tournaments, repeated contests, feedback, effort incentives
Language:English
Date:May 2017
Deposited On:09 Feb 2018 10:18
Last Modified:20 Sep 2018 04:28
Publisher:Elsevier
ISSN:0899-8256
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.geb.2016.02.006
Related URLs:https://www.zora.uzh.ch/id/eprint/99429/
Project Information:
  • : FunderSNSF
  • : Grant ID100018_131854
  • : Project TitleCompetition, Long-term Decisions, and Welfare
  • : FunderSNSF
  • : Grant IDP1ZHP1_151688
  • : Project TitleAsymmetry in Economic Decisions

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