The Power and Limits of Tournament Incentives
نویسندگان
چکیده
Tournaments provide incentives through the prize spread. Agents are predicted to work harder for higher prize spreads, and thus principals are predicted to maximize the spread. This paper shows experimentally how changing institutional environments affect the way that principals structure tournament incentives, and the degree of wage compression. While in some settings tournaments provide powerful incentives, and principals maximize the prize spread, two specific factors – sabotage opportunities, and loss aversion among agents – are shown to undermine the power of tournaments and cause principals to choose wage compression.
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