SELF-SELECTION AND THE EFFICIENCY OF TOURNAMENTS

The literature has shown that the overall efficiency of exogenously imposed tournaments is reduced by a high variance in performance. This article reports results from an experiment analyzing whether allowing subjects to self‐select into different payment schemes is reducing the variability of perfo...

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Bibliographic Details
Published in:Economic inquiry 2009-07, Vol.47 (3), p.530-548
Main Authors: ERIKSSON, TOR, TEYSSIER, SABRINA, VILLEVAL, MARIE-CLAIRE
Format: Article
Language:English
Subjects:
Brokers
Competitions
Economics and Finance
Efficiency
Employee motivation
Employees
Evaluation
Expected utility
Experiments
Humanities and Social Sciences
Labor market
Laboratories
Methods
Price discrimination
Risk aversion
Studies
Tournaments
Tournaments & championships
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Summary:The literature has shown that the overall efficiency of exogenously imposed tournaments is reduced by a high variance in performance. This article reports results from an experiment analyzing whether allowing subjects to self‐select into different payment schemes is reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament instead of a piece‐rate payment scheme, the average effort is higher and the between‐subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on risk aversion, sorting is efficiency enhancing since it increases the homogeneity of the contestants. (JEL M52, J33, J31, C81, C91)
ISSN:0095-2583
1465-7295
DOI:10.1111/j.1465-7295.2007.00094.x