Tournaments and piece rates revisited: a theoretical and experimental study of output-dependent prize tournaments |
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| Authors: | Werner Güth René Levínský Kerstin Pull Ori Weisel |
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| Institution: | 1.Max Planck Institute of Economics,Jena,Germany;2.Faculty of Economics and Social Sciences,Eberhard Karls Universit?t Tübingen,Tübingen,Germany;3.Centre for Decision Research and Experimental Economics,University of Nottingham,Nottingham,UK |
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| 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. |
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