The Optimality of Heterogeneous Tournaments

We investigate the effect of employee heterogeneity on the incentive to put forth effort in a market-based tournament. Employers use the tournament's outcome to estimate employees' abilities and accordingly condition their wage offers. Employees put forth effort, because by doing so they increase the probability of outperforming the rival, thereby increasing their ability assessment and thus the wage offer. We demonstrate that the tournament outcome provides more information about employees' abilities in case they are heterogeneous. Thus, employees get a higher incentive to affect the tournament outcome, and employers find it optimal to hire heterogeneous contestants

Revealed Social Preferences

Dolgopolov A, Freer M. Revealed Social Preferences. SSRN Electronic Journal. 2018:54.We use a revealed preference approach to develop tests for the observed behavior to be consistent with theories of social preferences. In particular, we provide nonparametric criteria for the observed set of choices to be generated by inequality averse preferences and increasing benevolence preferences. These tests can be applied to games commonly used to study social preferences: dictator, ultimatum, investment (trust) and carrot-stick games. We further apply these tests to experimental data on dictator and ultimatum games. Finally, we show how to identify the levels of altruism and fair outcomes using the developed revealed preference conditions