Abstract
If organizations implement incentive systems in which rewards depend on relative rather than on absolute performance, activities are induced from at least two dimensions: (i) productive activities increase the own output of an agent whereas (ii) destructive ones (called sabotage) reduce the output of the competitors. Unfortunately, the sabotage dimension is quite hard to be investigated in real organizations because in general this activity is undesired and therefore strictly forbidden. The present paper aims to fill this gap by an experimental approach which provides clear evidence of the influence of the fraction of winner prizes and the size of the prize difference on both activity dimensions. Contrary to the game-theoretic prediction the productive activity is highest for non-experienced participants in tournaments with a balanced fraction of winner and loser prizes. Moreover, the amount of destructive effort exerted is inefficiently high in relation to the productive effort. This sabotage problem is exacerbated by an increase in the prize difference.
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