An envelope approach to tournament design

Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an ”upper envelope” over all incentive compatibility conditions. lt turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments. DOI: https://doi.org/10.1016/j.jmateco.2015.11.004 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-115858 Published Version Originally published at: Ewerhart, Christian (2016). An envelope approach to tournament design. Journal of Mathematical Economics, 63:1-9. DOI: https://doi.org/10.1016/j.jmateco.2015.11.004 Journal of Mathematical Economics 63 (2016) 1–9