- A-Z
- Jena Economic Resea...
- Volume 4
- Tournaments and Pie...
- Autor(in)
- Erschienen
- 23. Juni 2010
- Nummer des Discussion-Papers
-
2010-039
- Schlagwort(e)
-
Economic experiments
Incentives
Tournaments
- Zusammenfsg.
-
Tournaments represent an increasingly important component of organizational compensation systems. While prior research focused on fixed-prize tournaments, i.e., on tournaments where the prize or prize sum to be awarded is set in advance, we introduce a new type of tournament into the literature: premium incentives. While premium incentives, just like fixed-prize tournaments, are based on relative performance, the prize to be awarded is not set in advance but is a function of the firm’s success: the prize is high if the firm is successful and low if it is not successful. Relying on a simple model of cost minimization, we are able to show that premium incentives outperform fixed-prize tournaments as well as piece rates. Our theoretical result is qualitatively confirmed by a controlled laboratory experiment and has important practical implications for the design of organizational incentive systems.
- article pub. typess JER
- Research article
- article languages JER
- Englisch
- JEL-Classification for JER
- C72 - Noncooperative Games ; C91 - Laboratory, Individual Behavior ; J33 - Compensation Packages; Payment Methods