Rank-order Tournaments Research Articles

Multiple prizes in tournaments with career concerns

We introduce career concerns into rank-order tournaments and offer a novel explanation for the pervasiveness of multiple prizes. We argue that career-concerned individuals, already facing market pressure to perform, will be reluctant to participate in winner-take-all competitions. To entice them and maximize performance, the organizer promises a softer competition through multiple prizes. We show that the minimum number of prizes is single-peaked in the population's talent variance and increasing in publicly disclosed ranks. We also examine entry fees, talent pre-screening, and prize budget as design tools for tournaments, along with prize allocation.

You’ve Got Three Choices: Give in, Give up, or Give it All You’ve Got: Does Contest Heterogeneity Affect Effort in Individual Competitions?

This study focuses on the effect of contest heterogeneity on individuals’ effort provision in rank-order tournaments. We add to the literature by analyzing data from a well-suited setting (professional darts tournaments) that differs significantly from those previously examined (mental effort task without direct interaction between contestants), while applying two different temporal types of heterogeneity, pre-contest and within-contest heterogeneity. We do not find consistent evidence for heterogeneity to influence players’ effort.

Designing Effective Teacher Performance Pay Programs: Experimental Evidence from Tanzania*

Abstract We use a nationally representative field experiment in Tanzania to compare two teacher performance pay systems in public primary schools: a ‘pay-for-percentile’ system (a rank-order tournament) and a ‘levels’ system that features multiple proficiency thresholds. Pay for percentile can potentially induce socially optimal effort among teachers, while levels systems can encourage teachers to focus on students near passing thresholds. Despite the theoretical advantage of the tournament system, we find that both systems improved student test scores across the distribution of initial learning levels after two years. However, the levels system is easier to implement and is more cost effective.

Collaborate to Compete: An Empirical Matching Game Under Incomplete Information in Rank-Order Tournaments

This paper studies the collaboration of talents in rank-order tournaments under incomplete information.

ОСНОВИ НА СЪВРЕМЕННАТА ИКОНОМИКА: ЕДУАРД П. ЛЕЙЗИЪР И ИКОНОМИКАТА НА ПЕРСОНАЛА

Edward P. Lazear (1948-2020) is one of the most influential economists in the field of applied Labour Economics in modern time. He founded Personnel Economics, which applies an economic approach to Human Resources. His work linked traditional Labour Economics with the empirical analysis of behaviour in organizations (mostly private enterprises) and labour markets. He revolutionized thinking about Human Resources and integrated this field into economic analysis. His views stand in the tradition of the Chicago School of Economics. Besides his scientific work, Lazear was an influential political adviser. In this survey, we provide a short overview of some of his pathbreaking contributions. These include mandatory retirement, rank-order tournaments, incentive structures, and compensation schemes.

All Out All the Time? Superstars and Incentives on the LPGA Tour

Using data from the 1995-2006 LPGA Tour, we analyse players’ response to the presence of Annika Sorenstam, a dominant champion on the LPGA Tour at the time. We find that the measures of players’ responses are highly sensitive to specification. Employing course fixed effects (FEs) greatly reduces the impact Sorenstam had on other golfers. We also find that players do not respond positively to the size of the reward to winning the tournament, which contradicts experimental studies of rank-order tournaments (ROTs). Our findings lead us to question both experimental and non-experimental studies of ROTs and of gender differences in response to them.

Team vs. individual tournament: An organizer's dilemma

Tournament theory has been supported by many pieces of empirical research in different fields. However, tournament theory literature focuses largely on the incentives of individual competitors. In our paper we develop a model the organizer choice between team and individual tournament and suggest a model of rank-order tournaments between teams. We test its implications using eSports (competitive video gaming) data. We show that both team and individual results follow tournament theory, however, there is a difference between the motivation of groups and individuals. Our study provides insights on the optimal reward structure, which should maximize effort of contestants, and, in the case of sports tournaments, entertainment value of the events.

Tournaments within football teams: players’ performance and wages

Football players’ wages are, in most clubs, the largest share of expenses and one of the most important incentives to keep players motivated. How are football players encouraged to constantly improve their performance and what is the effect of good performances on wages? Are wage spreads within teams being set to motivate players, as in a rank-order tournament? Using accurate data from Portuguese First League football player wages, we study the relationship between wages and players’ performance. Using minutes, number of games and performance statistics during the season as a proxy for players’ performance, we show that players who play more minutes earn a wage prize and those at the top face a convex relationship suggesting the setup of a tournament within football teams.

Impact of Tournament Incentives on Management Earnings Forecasts

This paper examines how rank-order tournament incentives in the top management team (TMT) influence the quality of management earnings forecasts (MEFs). Instead of breeding feelings of inequality and fostering peer sabotage, the large pay gap between the CEO and subordinates may motivate top executives to issue more accurate and precise forecasts to win the prize of promotion. The positive tournament effect on the quality of MEFs is weakened (strengthened) when the perceived probability of promotion for candidates is low (high). We find that firms with higher tournament incentives are more likely to issue supplementary forecasts to increase the credibility of MEFs. By examining the tournament effect at each subordinate manager level, we find that CFOs are the driving force in controlling the frequency and quality of management forecasts and chief marketing officers (CMOs) may also contribute to the quality of management forecasts. The results are robust to multiple measures of tournament incentives and multiple research designs.

Tournament rewards and heavy tails

Heavy-tailed fluctuations are common in many environments, such as sales of creative and innovative products or the financial sector. We study how the presence of heavy tails in the distribution of shocks affects the optimal allocation of prizes in rank-order tournaments à la Lazear and Rosen (1981). While a winner-take-all prize schedule maximizes aggregate effort for light-tailed shocks, prize sharing becomes optimal when shocks acquire heavy tails, increasingly so following a skewness order. Extreme prize sharing—rewarding all ranks but the very last—is optimal when shocks have a decreasing failure rate, such as power laws. Hence, under heavy-tailed uncertainty, typically associated with strong inequality in the distribution of gains, providing incentives and reducing inequality go hand in hand.

Monetary Incentives in Italian Public Administration: A Stimulus for Employees? An Agent-Based Approach

The paper, focusing on the context of Public Administration (PA), addresses the effects of monetary incentives in employees’ performance. In the Italian PA, the monetary incentives are distributed according to the D.L.150/09 (i.e., the monetary incentives are divided among the employees according to the employees’ performance) which is based on the rank order tournament. The paper investigates if this mechanism has positive and sustainable impacts on the employees’ performance in the short, middle, and long term. The employees’ performance has been modeled as a function of ability and motivation. The results of the computational experiments show a positive impact of the monetary incentives, distributed according to merit criteria, on the employees’ performance in the short, middle, and long term.

How noise affects effort in tournaments

It is commonly understood that making a tournament ranking process more noisy leads to a reduction in effort exerted by players in the tournament. But what exactly does it mean to have “more noise?” We address this question and show that the level of risk, as measured by the variance or the second-order stochastic dominance order, is not the answer, in general. For rank-order tournaments with arbitrary prizes, equilibrium effort decreases as noise becomes more dispersed, in the sense of the dispersive order. For winner-take-all tournaments, we identify a weaker version of the dispersive order we call quantile stochastic dominance, as well as other orders and entropy measures linking equilibrium effort and noise.

Does relative grading help male students? Evidence from a field experiment in the classroom

We conduct a framed field experiment at a Dutch university to compare student effort provision and exam performance under the two most prevalent evaluation practices: absolute (criterion-referenced) and relative (norm-referenced) grading. We hypothesize that the rank-order tournament created by relative grading will increase effort provision and performance among students with competitive preferences. We use student gender and survey measures (self-reported as well as incentivized) as proxies for competitiveness. Contrary to our expectations, we find no significant impact of relative grading on preparation behavior or exam scores, neither among men nor among students with higher measures of competitiveness. We discuss several potential explanations for this finding, and argue that it is likely attributable to the low value that students in our sample attach to academic excellence.

Two-person pairwise solvable games

A game is solvable if the set of Nash equilibria is nonempty and interchangeable. A pairwise solvable game is a two-person symmetric game in which any restricted game generated by a pair of strategies is solvable. We show that the set of equilibria in a pairwise solvable game is interchangeable. Under a quasiconcavity condition, we derive a complete order-theoretic characterization and some topological sufficient conditions for the existence of equilibria, and show that if the game is finite, then an iterated elimination of weakly dominated strategies leads precisely to the set of Nash equilibria, which means that such a game is both solvable and dominance solvable. All results are applicable to symmetric contests, such as the rent-seeking game and the rank-order tournament, which are shown to be pairwise solvable. Some applications to evolutionary equilibria are also given.

Prize Structure and Performance: Evidence from NASCAR

The predictions that emerge from tournament theory have been tested in a number of sports-related settings. Since sporting events involving individuals (golf, tennis, running, auto racing) feature rank order tournaments with relatively large payoffs and easily observable outcomes, sports is a natural setting for such tests. In this paper, we test the predictions of tournament theory using a unique race-level data set from NASCAR. Most previous tests of tournament theory using NASCAR data used either season level data or race level data from a few seasons. Our empirical work uses race and driver level NASCAR data for 1114 races over the period 1975–2009. Our results support the predictions of tournament theory: the larger the spread in prizes paid in the race, measured by the standard deviation or interquartile range of prizes paid, the higher the average speed in the race. Our results account for the length of the track, number of entrants, number of caution flags, and unobservable year- and week-level heterogeneity.

CEO power and labor productivity

PurposeThis paper aims to examine how Chief Executive Officer (CEO) power affects firm-level labor productivity.Design/methodology/approachThe authors rely on regression analysis to examine the relation between CEO power and labor productivity.FindingsFollowing prior research (i.e. the sequential rank order tournament theory), the authors predict that powerful CEOs lead to high labor productivity. They find a significant and positive relationship between CEO power and labor productivity. They further decompose labor productivity into labor efficiency and labor cost components and find a positive (negative) relationship between CEO power and labor efficiency (cost) component, suggesting that more powerful CEOs better manage labor efficiency and control labor cost. The results are also robust to various additional tests.Originality/valueThis study contributes to two streams of research: the CEO power literature in finance and the labor productivity and cost literature in accounting. To the best of the authors’ knowledge, it is the first study that performs a direct empirical test on the relation between CEO power and labor productivity.

Conditioning competitive risk: Competitors’ rank proximity and relative ability

We study rank-order tournaments to examine how the influence of the opportunity/threat of gaining/losing rank on competitive risk taking is moderated by the ability of an actor vis-à-vis its contiguous competitors. Consistent with social comparison theory, we find that we are better able to predict competitive risk by taking into account the interaction between short-term rank proximity and enduring ability – risk taking is triggered mainly when contiguously ranked competitors have commensurate ability. We study these notions in an ongoing sequence of real-time decisions professional golfers take to advance or avoid losing rank in 503 PGA Tour tournaments between 2003 and 2016. Our research provides new insights into risk taking and competitive blunders in business.

Helping under a combination of team and tournament incentives

We study how help can be fostered by means of a team bonus in the presence of rank-order tournaments. In a simple model we combine elements of relative rewards and a team bonus and study their effect on effort, help and sabotage. Quite intuitively the theoretical analysis suggests that team members help less as relative rewards increase. This problem is mitigated by a team bonus that is proportional to the output of the whole team. We compare different parameter constellations of the theoretical benchmark with behavior observed in a one-shot experiment.

Motivating political support with group-based rewards

To compete in political contests, politicians need their supporters to contribute resources. We investigate how politicians can best allocate group-based prizes on a contingent basis to incentivize individual members of a group to exert effort on their behalf. We contrast contingent contracts with tournament style contests (Lazear and Rosen (Rank-order tournaments as optimum labor contracts. J Political Econ 1981; 89(5): 841–864)) and characterize when tournaments that create intergroup contests for prizes elicit more contributions than contingent contracts. By tying the allocation of prizes to the observed level of effort made by each group, politicians ameliorate the collective action problem that is created by the fact that each individual’s effort has only a minimal impact on the overall political contest. We examine the relative performance and stability of intergroup tournaments as a function of the number of groups and asymmetric group size.

Helping Under a Combination of Team and Tournament Incentives

We study how help can be fostered by means of a team bonus in the presence of rank-order tournaments. In a simple model we combine elements of relative rewards and a team bonus and study their effect on effort, help and sabotage. Quite intuitively the theoretical analysis suggests that team members help less as relative rewards increase. This problem is mitigated by a team bonus that is proportional to the output of the whole team. We compare different parameter constellations of the theoretical benchmark with behavior observed in a one-shot experiment.