The nature of tournaments

نویسندگان

  • Robert J. Akerlof
  • Richard T. Holden
  • R. T. Holden
چکیده

This paper characterizes the optimal way for a principal to structure a rank-order tournament in amoral hazard setting (as in Lazear andRosen in J Polit Econ 89:841–864, 1981). We find that it is often optimal to give rewards to top performers that are smaller inmagnitude than corresponding punishments to poor performers. The paper identifies four reasons why the principal might prefer to give larger rewards than punishments: (1) R is small relative to P (where R is risk aversion and P is absolute prudence); (2) the distribution of shocks to output is asymmetric and the asymmetry takes a particular form; (3) the principal faces a limited liability constraint; and (4) there is agent heterogeneity of a particular form.

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تاریخ انتشار 2012