Behavioral and Welfare Effects of Tournaments and Fixed Performance Contracts: Some Experimental Evidence

Posted: 14 Dec 2005

See all articles by Steven Y. Wu

Steven Y. Wu

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics; IZA Institute of Labor Economics

Brian E. Roe

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Abstract

Using experimental economics, we compare the efficiency and welfare effects of tournaments and fixed performance contracts. Our subjects (agents) were generally better off under fixed performance contracts, but the advantage of the fixed performance contract disappears if the relative magnitude of the standard deviation of the common shock exceeds a critical value. Efficiency wise, agents tend to exert higher effort under fixed performance contracts, on average. Additionally, an increase in the common shock standard deviation appeared to be associated with lower effort under tournaments. Our results shed light on the potential impact of legislative proposals to ban tournament contracts.

Suggested Citation

Wu, Steven Yu-Ping and Roe, Brian E., Behavioral and Welfare Effects of Tournaments and Fixed Performance Contracts: Some Experimental Evidence. American Journal of Agricultural Economics, Vol. 87, No. 1, pp. 130-146, February 2005. Available at SSRN: https://ssrn.com/abstract=856474 or http://dx.doi.org/10.1111/j.0002-9092.2005.00707.x

Steven Yu-Ping Wu (Contact Author)

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
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614-247-7494 (Phone)

HOME PAGE: http://www-agecon.ag.ohio-state.edu/people/display.cfm?User_ID=wu412

IZA Institute of Labor Economics

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

Brian E. Roe

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States
614-688-5777 (Phone)

HOME PAGE: http://https://aede.osu.edu/our-people/brian-e-roe

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