Self-Selection and the Efficiency of Tournaments

By Tor Eriksson, Sabrina Teyssier, Marie-Claire Villeval. Social Science Research Network, 2009

143 citations recorded by the source corpus.

When exogenously imposed, rank-order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance (Bull, Schotter, and Weigelt 1987). However, since the efficiency of performance-related pay is attributable both to its incentive effect and to its selection effect among employees (Lazear, 2000), it is important to investigate the ex ante sorting effect of tournaments. This paper reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes helps in reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Sorting is efficiency-enhancing since it increases the homogeneity of the contestants. We suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay.

Subfields: General Decision Sciences, Management Science and Operations Research, Safety Research

View Paper: https://www.semanticscholar.org/paper/ece9fe1166999e3be991357f5c66c991a5467970

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Citations in the corpus

Overbidding and Heterogeneous Behavior in Contest Experiments (2013, unknown): “Unlike overbidding, heterogeneous behavior of individuals is mostly viewed as negative, because such behavior creates unnecessary uncertainty and imposes a substantial cost on the contest designer (Bull et al., 1987; Lazear, 1999, 2000; Eriksson et al., 2009).”
Entry into Winner-Take-All and Proportional-Prize Contests: An Experimental Study (2010, background): “…to piece rate wages, winner-take-all incentives may lead to greater variance in effort by players (Bull et al., 1987; Nalbantian and Schotter, 1997; Eriksson et al., 2009) or sabotage among them (Munster, 2007; Chen, 2003; Harbring and Irlenbusch, 2008), and the outcomes are also affected by…”
A survey of experimental research on contests, all-pay auctions and tournaments (2014, background): “…and Weigelt 1992; Nalbantian and Schotter 1997; Harbring and Irlenbusch 2005, 2008; Orrison et al. 2004; Wu and Roe 2005; Wu et al. 2006; Harbring et al. 2007; Harbring and Lünser 2008; Eriksson et al. 2009b; Sheremeta and Wu 2011; Eisenkopf and Teyssier 2012, 2013; Agranov and Tergiman 2013).”
Experimental comparison of multi-stage and one-stage contests (2009, background): “14 Eriksson et al. (2009) report results from an experiment where subjects could self-select into a tournament.”