Optimal Effort Incentives in Dynamic Tournaments

55 Pages Posted: 14 Oct 2014

See all articles by Arnd Klein

Arnd Klein

University of Zurich

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

Abstract

This paper analyzes two-stage rank-order tournaments. A principal decides (i) how to spread prize money across the two periods, (ii) how to weigh performance in the two periods when awarding the second period prize, and (iii) whether to reveal performance after the first period. The information revelation policy depends exclusively on properties of the effort cost function. The principal always puts a positive weight on first-period performance in the second period. The size of the weight and the optimal prizes depend on properties of the observation error distribution; they should be chosen so as to strike a balance between the competitiveness of first- and second-period tournaments. In particular, the principal sets no first-period prize unless the observations in period one are considerably more precise than in period two.

Keywords: dynamic tournaments, effort incentives, information revelation, repeated contests

JEL Classification: D02, D44

Suggested Citation

Klein, Arnd and Schmutzler, Armin, Optimal Effort Incentives in Dynamic Tournaments (October 2014). CEPR Discussion Paper No. DP10192, Available at SSRN: https://ssrn.com/abstract=2510049

Arnd Klein (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Armin Schmutzler

University of Zurich - Department of Economics ( email )

Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
452
PlumX Metrics