Testing Canonical Tournament Theory: On the Impact of Risk, Social Preferences and Utility Structure

66 Pages Posted: 4 Feb 2012

See all articles by Roman M. Sheremeta

Roman M. Sheremeta

Case Western Reserve University

Steven Y. Wu

Purdue University - College of Agriculture; IZA Institute of Labor Economics

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Abstract

We use experiments to test comparative statics predictions of canonical tournament theory. Both the roles of principal and agent are populated by human subjects, allowing us to test predictions for both incentive responses and optimal tournament design. Consistent with theory, we observed an incentive effect from raising the winner's prize. However, we also observed several empirical puzzles that appeared to contradict theory. Controlling for social preferences did not resolve the puzzles, although social preferences do influence behavior. It turns out that the puzzles can be explained by the canonical model once the textbook assumption of separable agent utility is relaxed.

Keywords: tournaments, experiment, social preferences, contract theory

JEL Classification: D03, D82, D86, M52, M55

Suggested Citation

Sheremeta, Roman M. and Wu, Steven Y., Testing Canonical Tournament Theory: On the Impact of Risk, Social Preferences and Utility Structure. IZA Discussion Paper No. 6304. Available at SSRN: https://ssrn.com/abstract=1999332

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Steven Y. Wu

Purdue University - College of Agriculture ( email )

United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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