Optimal Tournament Contracts for Heterogeneous Workers

Arbeitspapier

We analyze the optimal design of rank-order tournaments with heterogeneous workers. Iftournament prizes do not differ between the workers(uniform prizes), as in the previous tournament literature, the outcome will be ineffcient. In the case of limited liability, the employer may benefit from implementing more than first-best effort. We show that the employer can use individual prizes that satisfy a self-commitment condition and induce effcient incentives at the same time, thus solving a fundamental dilemma in tournament theory. Individual prizes exhibit two major advantages - they allow the extraction of worker rents and the adjustment of individual incentives, which will be important for the employer if he cannot rely on handicaps.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 234

Classification and Topics

• Classification: Wirtschaft ; Compensation Packages; Payment Methods ; Personnel Management; Executives; Executive Compensation ; Personnel Economics: Compensation and Compensation Methods and Their Effects
• Subject: heterogenous workers ; limited liability ; rank-order tournaments ; self commitment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gürtler, Oliver ; Kräkel, Matthias
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2008

Further information

• DOI: doi:10.5282/ubm/epub.13318
• Handle: http://hdl.handle.net/10419/93810
• URN: urn:nbn:de:bvb:19-epub-13318-6
• Last update: 10.03.2025, 11:44 AM CET