Strive to be first and avoid being last: An experiment on relative performance incentives

Konferenzbeitrag

Managers often use tournament incentive schemes which motivate workers to compete for the top, compete to avoid the bottom, or both. In this paper we test the effectiveness and efficiency of these incentive schemes. To do so, we utilize optimal contracts in a principal-agent setting, using a Lazear-Rosen type model that predicts equal effort and efficiency levels for three tournament incentive schemes: reward tournaments, punishment tournaments, and tournaments combining reward and punishment. We test the model s predictions in a laboratory experiment and find that the combination of reward and punishment produces the highest effort from agents, especially in contests of a relatively larger size. Punishment is shown to be more effective and, in larger contests, more efficient than rewards, and it is also the mechanism with the lowest variance of effort. Finally, we show that behavior in all mechanisms is consistent with a model of basic directional and reinforcement learning.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung - Session: Pay and Performance ; No. C17-V1

Classification and Topics

• Classification: Wirtschaft ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Compensation Packages; Payment Methods ; Design of Experiments: General

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lindner, Florian ; Dutcher, E. Glenn ; Balafoutas, Loukas ; Ryvkin, Dmitry ; Sutter, Matthias
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/79885
• Last update: 10.03.2025, 11:44 AM CET