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Experimental Economics

, Volume 10, Issue 4, pp 345–368 | Cite as

Incentive effects and overcrowding in tournaments: An experimental analysis

  • Donald Vandegrift
  • Abdullah Yavas
  • Paul M. Brown
Article

Abstract

This study reports experiments that examine outcomes when agents choose between a payment scheme that rewards based on absolute performance (i.e., piece rate) and a scheme that rewards based on relative performance (i.e., a tournament). Holding total payments in the tournament constant, performance is higher when the tournament option is winner-take-all compared to a graduated tournament (i.e., second and third-place performers also receive a payment). Performance is higher in the winner-take all tournaments even among participants that choose the piece-rate option. While there is a modest amount of overcrowding, there are no significant differences in overcrowding across conditions. Entry rates into the tournament and the relative ability of tournament entrants (compared to non-entrants in the same condition) are higher in the graduated tournament condition than the winner-take-all conditions. Consequently, the winner-take-all tournament is more efficient than the graduated tournament (incentive effects are stronger and the overcrowding is about the same), but the graduated tournament provides a more effective mechanism to identify the most capable performer in a talent pool.

Keywords

Tournament Overcrowding Experiment Incentive effects 

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Supplementary material

10683_2006_9138_MOESEM1_ESM.doc (50 kb)
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10683_2006_9138_MOESEM2_ESM.doc (56 kb)
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10683_2006_9138_MOESEM4_ESM.doc (56 kb)
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Copyright information

© Economic Science Association 2007

Authors and Affiliations

  • Donald Vandegrift
    • 1
  • Abdullah Yavas
    • 2
  • Paul M. Brown
    • 3
  1. 1.The College of New JerseyEwingUSA
  2. 2.Business Administration and Institute of Real Estate Studies, Smeal College of Business AdministrationPennsylvania State UniversityUniversity ParkUSA
  3. 3.Health Economics, School of Population HealthUniversity of AucklandAucklandNew Zealand

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