Optimal Effort Incentives in Dynamic Tournaments

Armin Schmutzler and Arnd Heinrich Klein

No 10192, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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; Repeated contests; Information revelation; Effort incentives (search for similar items in EconPapers)
JEL-codes: D02 D44 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal effort incentives in dynamic tournaments (2017)
Working Paper: Optimal Effort Incentives in Dynamic Tournaments (2015)
Working Paper: Optimal effort incentives in dynamic tournaments (2014)
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