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Incentive effects and overcrowding in tournaments: An experimental analysis

Published online by Cambridge University Press:  14 March 2025

Donald Vandegrift ,
Abdullah Yavas  and
Paul M. Brown
Donald Vandegrift*
Affiliation:
The College of New Jersey, 2000 Pennington Rd. Ewing, NJ 08628-0718
Abdullah Yavas*
Affiliation:
Business Administration and Institute of Real Estate Studies, Smeal College of Business Administration, Pennsylvania State University, University Park, PA 16802
Paul M. Brown*
Affiliation:
Health Economics, School of Population Health, University of Auckland, Auckland, New Zealand
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
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Abstract

This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool.

Keywords

TournamentOvercrowdingExperimentIncentive effects

JEL classification

D8: Information, Knowledge, and Uncertainty L2: Firm Objectives, Organization, and Behavior J3: Wages, Compensation, and Labor Costs
Type
Research Article
Information
Experimental Economics , Volume 10 , Issue 4 , December 2007 , pp. 345 - 368
Copyright
Copyright © 2007 Economic Science Association

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Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-9138-9.

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