Performance Bundling Across Multiple Competitions

39 Pages Posted: 29 Apr 2019

See all articles by Jingfeng Lu

Jingfeng Lu

National University of Singapore (NUS) - Department of Economics

Bo Shen

Wuhan University - School of Economics and Management

Zhewei Wang

School of Economics, Shandong University

Date Written: February 16, 2019

Abstract

In a multi-project contract environment with a single agent who is subject to limited liability, the optimality of performance bundling across all projects is well established: The agent should be rewarded only if all projects are successful. In this paper, we study performance bundling across multiple competitions between two (possibly asymmetric) players. We find that in addition to a beneficial cost-saving effect that diminishes with asymmetry across players, performance bundling causes a counterproductive unbalancing effect, which intensifies with this asymmetry. Thus, performance bundling is desirable only if the players are sufficiently symmetric. Otherwise, a set of independent contests is optimal.

Keywords: Multidimensional Contest, Performance Bundling, Cost-Saving Effect, Unbalancing Effect

JEL Classification: C72, D72, D74

Suggested Citation

Lu, Jingfeng and Shen, Bo and Wang, Zhewei, Performance Bundling Across Multiple Competitions (February 16, 2019). Available at SSRN: https://ssrn.com/abstract=3361481 or http://dx.doi.org/10.2139/ssrn.3361481

Jingfeng Lu

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Bo Shen

Wuhan University - School of Economics and Management ( email )

Luojia Hill, Wuhan
Wu Han, Hu Bei 430072
China

Zhewei Wang (Contact Author)

School of Economics, Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
496
PlumX Metrics