Tournaments and piece rates revisited: a theoretical and experimental study of 
output-dependent prize tournaments

Güth, Werner; Levínský, René; Pull, Kerstin; Weisel, Ori

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Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments

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Güth, Werner
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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http://link.springer.com/article/10.1007%2Fs10058-015-0184-7
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Citation

Güth, W., Levínský, R., Pull, K., & Weisel, O. (2016). Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments. Review of Economic Design, 20(1), 69-88.

Cite as: https://hdl.handle.net/11858/00-001M-0000-0029-D7AE-5

Abstract

Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments where the prize to be awarded is set in advance, we introduce ‘output-dependent prizes’ where the tournament prize is endogenously determined by agents’ output—it is high when the output is high and low when the output is low. We show that tournaments with output-dependent prizes outperform fixed-prize tournaments and piece rates. A multi-agent experiment supports the theoretical result.