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Incentives and motivation in dynamic contests


Klein, Arnd Heinrich; Schmutzler, Armin (2021). Incentives and motivation in dynamic contests. Journal of Economic Behavior & Organization, 189:194-216.

Abstract

This paper uses a contest setting to analyze the provision of intertemporal incentives in organizations. Should a principal repeatedly award small prizes or give a large prize that takes past performance into account? A simple theoretical model predicts higher efforts in the latter case. An experiment confirms this prediction, but the size of the effect is smaller than expected. This result reflects two observations of independent interest. First, there is a revenge effect for laggards in repeated contests: Laggards exert higher efforts than leaders with the same first-period effort level. Second, there is an intimidation effect for laggards in the single-prize case: Laggards exert lower efforts than leaders with the same first-period effort level. Moreover, we observe polarization in laggard behavior.

Abstract

This paper uses a contest setting to analyze the provision of intertemporal incentives in organizations. Should a principal repeatedly award small prizes or give a large prize that takes past performance into account? A simple theoretical model predicts higher efforts in the latter case. An experiment confirms this prediction, but the size of the effect is smaller than expected. This result reflects two observations of independent interest. First, there is a revenge effect for laggards in repeated contests: Laggards exert higher efforts than leaders with the same first-period effort level. Second, there is an intimidation effect for laggards in the single-prize case: Laggards exert lower efforts than leaders with the same first-period effort level. Moreover, we observe polarization in laggard behavior.

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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
Social Sciences & Humanities > Organizational Behavior and Human Resource Management
Uncontrolled Keywords:Dynamic contests, rank-order tournaments, incentive systems, intimidation effect, revenge effect, experiments
Language:English
Date:September 2021
Deposited On:03 Sep 2021 04:51
Last Modified:04 Sep 2021 20:00
Publisher:Elsevier
ISSN:0167-2681
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.jebo.2021.06.023
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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