Top guns may not fire:Best-shot group contests with group-specific public good prizes

We analyze a group contest in which n groups compete to win a group-specific public good prize. Group sizes can be different and any player may value the prize differently within and across groups. Players exert costly efforts simultaneously and independently. Only the highest effort (the best-shot) within each group represents the group effort that determines the winning group. We fully characterize the set of equilibria and show that in any equilibrium at most one player in each group exerts strictly positive effort. There always exists an equilibrium in which only the highest value player in each active group exerts strictly positive effort. However, perverse equilibria may exist in which the highest value players completely free-ride on others by exerting no effort. We provide conditions under which the set of equilibria can be restricted and discuss contest design implications

Rank-Order Tournaments as Optimum Labor Contracts

This paper analyzes compensation schemes which pay according to an individual's ordinal rank in an organization rather than his output level. When workers are risk neutral, it is shown that wages based upon rank induce the same efficient allocation of resources as an incentive reward scheme based on individual output levels. Under some circumstances, risk-averse workers actually prefer to be paid on the basis of rank. In addition, if workers are heterogeneous inability, low-quality workers attempt to contaminate high-quality firms, resulting in adverse selection. However, if ability is known in advance, a competitive handicapping structure exists which allows all workers to compete efficiently in the same organization.

The allocation of rewards in athletic contests

Similar to most top-tier matches in professional basketball, baseball and soccer, high-level competitions in individualistic sports, such as the tennis tournaments of Wimble-don and Flushing Meadows, the golf tournaments of Augusta and St. Andrews, as well as the marathons of New York and London attract not only thousands of spectators, but also a TV audience of millions of fans. Moreover, these (and other) individualistic sports have recently received increased attention also from economists trying to test a number of hypotheses that can be derived from "tournament theory" or - as a synonym - from "contest theory". The chapter is structured as follows: We first provide a brief description of the development of prize money levels and structures in the three different individual sports men-tioned in the previous paragraph (and, consequently, athletes' incomes over the last years (section 2). We then summarize the basic insights and the core predictions of tour-nament/contest theory (section 3) and review the available literature on the incentive effects of tournament pay systems in athletic contests (section 4). Finally, section 5 concludes and raises some of the questions that have not been answered yet and that should, therefore, be dealt with in future research.

Sabotage in Asymmetric Contests – An Experimental Analysis

In a contest players compete for winning a prize by effort and thereby increasing their probability of winning. Contestants, however, could also improve their own relative position by harming the other players. We experimentally analyze contests with heterogeneous agents who may individually sabotage each other. Our results suggest that sabotaging behavior systematically varies with the composition of different types of agents in a contest. Moreover, if the saboteur's identity is revealed sabotage decreases while retaliation motives prevail.Contest, Experiments, Sabotage, Tournament

Homogenous and Heterogenous Contestants in Piece Rate Tournaments: Theory and Empirical Analysis

In this paper we show that sorting different ability contestants in piece rate tournaments into more homogeneous groups alters incentives for agents to exert effort. In particular we show that for a given mean of the tournament group's ability parameters, larger variance (more heterogeneous agents) induces higher optimal effort. This implies that the principal can actually gain from heterogenizing the tournament groups. On the other hand, the effect of this change on growers' welfare is unclear because higher effort leads to higher productivity and hence higher payment, but also increases the cost of effort. Using broiler production contracts settlement data we empirically estimate a fully structural model of a piece rate tournament game with heterogeneous players. Our counterfactual analysis shows that under reasonable assumptions the integrator's gain is actually larger than the growers' losses indicating that heterogenizing groups in piece rate tournaments may be efficient.Research Methods/ Statistical Methods,

On the competition of asymetric agents

Rank-order tournaments are usually implemented in organizations to provide incentives for eliciting employees’ effort and/or to identify the agent with the higher ability, e.g. in promotion tournaments. We close a gap in the literature by experimentally analyzing a ceteris paribus variation of the prize spread – being the major design feature of tournaments – in a symmetric and an asymmetric setting. We find that effort significantly increases with the prize spread as predicted by standard theory. However, only if the prize spread is sufficiently large weak players competing against strong players strain themselves all the more and sorting of agents is feasible

Optimal prize allocations in group contests

We characterize the optimal prize allocation, namely the allocation that maximizes a group's effectiveness, in a model of contests. The model has the following features: (i) it allows for heterogeneity between and within groups; (ii) it classifies contests as "easy" and "hard" depending on whether the marginal costs are concave or convex. Thus, we show that in an "easy" contest the optimal prize allocation assigns the entire prize to one group member, the most skilled one. Conversely, all group members receive a positive share of the prize when the contest is "hard" and players have unbounded above marginal productivities. If the contest is "hard" and the marginal productivities are bounded above, then only the most skilled group members are certain of receiving a positive share of the prize for any distribution of abilities. Finally, we study the effects of a change in the distribution of abilities within a group. Our analysis shows that if the contest is either "easy" or a particular subset of "hard", then the more the heterogeneity within a group, the higher its probability of winning the prize

Entry regulations and optimal prize allocation in parallel contests

In parallel contests, the contest organizer controls the entry of heterogeneous contestants by regulating access to the contests and determining the prize allocation across contests. The organizer can prevent a contestant from entering more than one contest. I show that the organizer allows entry to multiple contests and uniquely sets identical prizes across contests to maximize aggregate effort in all contests. Independent of the entry regulation, I find no sorting effects. Thus, a contest with a relatively high prize does not necessarily attract contestants with higher abilities. Furthermore, I discover interesting spillover effects of prizes between contests in the case of restricted entry regulations. For instance, the individual (aggregate) effort increases (decreases) in a contest if the prize in another contest increases. The endogeneity of contestants’ participation drives many of these results

Rank-order tournaments, probability of winning and investing in talent:evidence from Champions’ League qualifying rules

We analyse how a change in the probability of winning a tournament affects an agent's effort using the qualification rules for entry into the group and playoff stages of the UEFA Champions' League. Our results suggest that increasing the number of slots that a national league gets in the Champions' League leads to increases in investment in talent ex ante. This effect is largest among the teams that in the previous season just failed to qualify. This suggests that changes in prize structure leads to changes in investment decisions amongst those clubs most affected at the margin. However, we also find that incumbent teams that have already qualified for the Champions' League simultaneously raise their efforts, consistent with the occurrence of an arms race among top European football teams