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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Optimal effort incentives in dynamic tournaments
Organization Unit
  • Arnd Heinrich Klein
  • Armin Schmutzler
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 175
ISSN 1664-7041
Number of Pages 53
Date 2014
Abstract Text This paper analyzes two-stage rank-order tournaments. A principal decides (i) how to spread prize money across the two periods, (ii) how to weigh performance in the two periods when awarding the second-period prize, and (iii) whether to reveal performance after the first period. The information revelation policy depends exclusively on properties of the effort cost function. The principal always puts a positive weight on first-period performance in the second period. The size of the weight and the optimal prizes depend on properties of the observation error distribution; they should be chosen so as to strike a balance between the competitiveness of first- and second-period tournaments. In particular, the principal sets no first-period prize unless the observations in period one are considerably more precise than in period two.
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Keywords dynamic tournaments, repeated contests, information revelation, effort incentives, Dynamisches Spiel, Informationsstruktur, Anreize