The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment
Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute
Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)
August 11, 2011
Tinbergen Institute Discussion Paper 11-120/1
We conduct a field experiment in a large retail chain to test basic predictions of tournament theory regarding prize spread and noise. A random subset of the 208 stores participates in two-stage elimination tournaments. Tournaments differ in the distribution of prize money across winners of the first and second round of the tournament. As predicted by theory, we find that a more convex prize spread increases performance in the second round at the expense of first-round performance, although the magnitude of these effects is small. Moreover, the treatment effect is significantly larger for stores that historically have relatively stable performance as compared to stores with more noisy performance.
Number of Pages in PDF File: 41
Keywords: elimination tournaments, incentives, prize spread, performance measurement, field experiment
JEL Classification: C93, M51, M52working papers series
Date posted: August 12, 2011
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