Sorting and selection e§ects in tournament mechanisms: An experimental investigation†

In this paper we utilize optimal contracts in a Lazear-Rosen tournament to experimentally examine how the selection of an incentive mechanism by managers and, likewise, the self-selection into a mechanism by employees, a§ect employee output. Depending on the treatment, those assigned the role of a principal or an agent could choose between two theoretically equivalent tournaments: a reward tournament, where one agent receives the top prize, or a punishment tournament, where one agent receives the bottom prize. We find that agents prefer the punishment tournament more than the reward. By classifying the agents within three di§erent competitiveness types, we observe that middle agents are indi§erent between the two tournament mechanisms, whereas high — and mainly low — types sort into the punishment tournament. We also compare e§ort levels between the two treatments and find a negative (positive) selection e§ect on e§ort in the reward (punishment) mechanism. Finally, e¢ciency is higher when agents can select their preferred mechanism. JEL-Classification: M52, J33, J24, D24, C90