34 Pages Posted: 26 Mar 2012
Date Written: March 26, 2012
This paper explores the consequences of sabotage for the design of incentive contracts. The possibility of sabotage gives rise to a dynamic concern, similar to the Ratchet effect, which distorts the agents' incentives. We first show that the mere possibility of sabotage may make it impossible to implement the first-best effort, and then offer two distinct incentive schemes, fast track and late selection, to circumvent this problem. The present model offers a mechanism through which these two schemes arise in a unified framework.
Keywords: Sabotage, Tournament, Fast track, Late selection
JEL Classification: J41;M12.
Suggested Citation: Suggested Citation
Ishida, Junichiro, Dynamically Sabotage-Proof Tournaments (March 26, 2012). ISER Discussion Paper No. 838. Available at SSRN: https://ssrn.com/abstract=2029360 or http://dx.doi.org/10.2139/ssrn.2029360
By Jan Zabojnik