Tournaments, Risk Taking, and the Role of Carrots and Sticks
نویسنده
چکیده
We study a Lazear-Rosen tournament in which players choose both work effort, which determines the mean of their output distribution, and the variance of output. The variance can be increased above its natural level but it is costly to do so. We show that tournaments involving more than two players generate incentives for risk-neutral players to pursue high-risk projects. However, the incorporation of a penalty for the player who finishes last in addition to a prize to the player who finishes first can eliminate this risk-seeking and retrieve efficiency in the tournament. More generally, the model illustrates that the balance of carrots and sticks in rankdependent compensation will influence workers attitude toward risk taking.
منابع مشابه
Sticking with Carrots and Sticks (Sticking Points Aside): A Response to Ventakapuram, Goldberg, and Forrow
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