the optimal allocation of prizes in tournaments of heterogeneous agents tournaments are widely used in organizations explicitly or implicitly to reward the best performing employees for example by promotion or bonuses and or to penalize the worst performing employees for example by demotion withholding bonuses or unfavorable job assignments these incentive schemes can be interpreted as various prize allocations based on the employees relative performance while the optimal prize allocation in tournaments of symmetric agents is relatively well understood little is known about the impact of the allocation of prizes on the effectiveness of tournament incentive schemes for heterogeneous agents we show that while multiple prize allocation rules are equivalent when agents are symmetric in their ability the equivalence is broken in the presence of heterogeneity under a wide range of conditions loser prize tournaments that is tournaments that award a low prize to relatively few bottom performers are optimal for the firm the reason is that low ability agents are discouraged less in such tournaments as compared to winner prize tournaments awarding a high prize to few top performers and hence can be compensated less to meet their participation constraints jel m52 j33 j24

the incentive effect of a handicap the incentive effect of a handicap in a tournament competition is studied a handicap may decrease the effort levels of the advantaged group or the disadvantaged group however the average effort level will always increase as long as the performance measure is informative of effort in a specific sense the monotone likelihood ratio property

self selection and the efficiency of tournaments when exogenously imposed rank order tournaments have incentive properties but their overall efficiency is reduced by a high variance in performance bull schotter and weigelt 1987 however since the efficiency of performance related pay is attributable both to its incentive effect and to its selection effect among employees lazear 2000 it is important to investigate the ex ante sorting effect of tournaments this paper reports results from an experiment analyzing whether allowing subjects to self select into different payment schemes helps in reducing the variability of performance in tournaments we show that when the subjects choose to enter a tournament the average effort is higher and the between subject variance is substantially lower than when the same payment scheme is imposed sorting is efficiency enhancing since it increases the homogeneity of the contestants we suggest that the flexibility of the labor market is an important condition for a higher efficiency of relative performance pay

affirmative action and opportunity a study of female quit rates t he effectiveness of affirmative action efforts has been a topic of some controversy and the literature is unclear about whether women and or minorities benefit one source of confusion is that in some models the economywide effect can be in a different direction than the effect upon regulated or covered individuals and firms in a sense this is much like the minimum wage in that while some individuals benefit there is considerable controversy about the gains for target groups as a whole what is more surprising however is that the affirmative action literature is unclear about whether the programs achieve their goals for firms which are covered again in part this confusion is theoretical for wage and hiring directives may provide conflicting incentives beller 1978 another difficulty is methodological in that measures of affirmative action activity tend to be indirect 1 this last point as we shall see is especially true for studies of the federal contract compliance program this paper assesses the effectiveness of the federal contract compliance program which is administered by the office of federal contract compliance ofcc in improving opportunities for women rather than focusing on wage growth or the sex composition of occupations or firms as have all the previous studies we examine quit rates quits are a useful measure of people s perceptions about their opportunities and effective affirmative action programs may improve intra firm opportunities for advancement as a result subject to some caveats discussed below we expect that program effectiveness is captured by a reduction in quit rates from previous levels in addition this paper employs a more defensible measure of ofcc activities than is typical in most studies part i of the paper develops the model part ii introduces the data and the specifications the basic results are presented in part iii two major conometric difficulties whether the ofcc variables are actually proxies for other industry effects and the possible endogeneity of ofcc activity are addressed in part iv and the results are summarized in the final section

a designer s choice between single prize and parallel tournaments in this article i theoretically and experimentally compare a designer s profits from two tournament designs the first design is a standard winner take all tournament with a single prize the second design features two winner take all parallel tournaments with different prizes where individuals choose which tournament to enter before competing i develop a simple model that illustrates how the relative performances of these designs change as contestants abilities differ the theoretical model shows that the designer s profit is higher lower in the parallel tournament when contestants abilities differ greatly are similar i complement these findings with experimental evidence the experiments show that the parallel tournament is more profitable under high heterogeneity whereas under low heterogeneity the designer is better off with the single prize tournament furthermore high ability agents under participate and low ability agents over participate in the high prize tournament relative to the theoretical prediction jel c72 d82 j33 m51 m52

on the analysis of asymmetric first price auctions we provide a new set of tools for studying asymmetric rst price auctions connecting their equilibria to the concavity of the underlying type distributions and showing how one can use surplus expressions related to symmetric auctions to bound equilibrium behavior in asymmetric auctions we apply these tools to studying procurement auctions in which as is common in practice one seller is given an advantage re ecting for example better reliability or quality we show conditions under which for any given rst price handicap auction there is a second price auction with bonuses that outperforms it with most of our results involving ex post dominance

economic contests comparative reward schemes contests are situations in which an individual s reward depends on his performance relative to others students are graded on a curve the candidate with the most votes gets the political office the underling who performs best is promoted to the executive position contests are useful in dealing with indivisible rewards reducing monitoring costs and minimizing risks from common uncertainties they are employed to sort potential participants and once they have entered to induce appropriate effort from them with monitoring precision and prize spreads as potential choice variables optimal contest structures are derived for fair and unfair contests among equal and unequal participants the converse problems of climbing low ability individuals enter the contest designed for high ability candidates and slumming are shown to be manageable

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

how many winners are good to have on tournaments with sabotage abstract from an employer s perspective a tournament should induce agents to exert productive activities but refrain from destructive ones we experimentally test the predictive power of a tournament model which suggests that within a reasonable framework productive and destructive activities are influenced neither by the number of agents taking part in the tournament nor by the fraction of the winner prizes our results clearly confirm that sabotage in tournaments indeed occurs while tournament size has virtually no effect on behavior a balanced fraction of winner and loser prizes appears to enhance productive activities

competition as a savings incentive a field experiment at a homeless shelter abstract this paper describes a randomized field experiment testing the impact of a savings competition on the behavior of homeless individuals staying at a transitional shelter when monetary prizes were offered for achieving the highest saving rates within a particular month average savings increased by 80 a 30 increase in savings rate while income and attendance at case management meetings remained unchanged however repeating the competition in the following month had no effect because responsive savers selected out of the shelter after the first month in summary while a savings competition can increase savings in the short run its effect may be limited to the intensive margin and may diminish with repetition

rent seeking with regretful agents theory and experiment abstract we investigate both theoretically and experimentally the role that information disclosure has on behavior in all pay environments in which all agents must exert costly effort but only the winner is rewarded through the lens of all pay auctions we show that bidders who have regret concerns when they lose an auction may alter their bids whether or not information about the winning bid is disclosed all losing bidders regret not bidding 0 however when feedback on the winning bid is provided those bidders who lost at an affordable price may regret not bidding more we show that the former effect causes bidders to lower their bids while the latter effect causes bidders to raise their bids our experimental results indicate overbidding whether or not the winning bid is disclosed to losing bidders however disclosing the winning bid leads to even more aggressive bidding increases revenues decreases the frequency of dropouts and also leads to more efficient allocations thus our results show that information disclosure is a powerful tool that mechanism designers may wish to exploit to extract more rents in all pay environments

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

behavioral and welfare effects of tournaments and fixed performance contracts some experimental evidence using experimental economics we compare the efficiency and welfare effects of tournaments and fixed performance contracts our subjects agents were generally better off under fixed performance contracts but the advantage of the fixed performance contract disappears if the relative magnitude of the standard deviation of the common shock exceeds a critical value efficiency wise agents tend to exert higher effort under fixed performance contracts on average additionally an increase in the common shock standard deviation appeared to be associated with lower effort under tournaments our results shed light on the potential impact of legislative proposals to ban tournament contracts

biased contests for symmetric players in a biased contest one of the players has an advantage in the winner determination process we characterize a novel class of biased contest success functions pertaining to such contests and provide necessary and sufficient conditions for zero bias to be a critical point of arbitrary objectives satisfying certain symmetry restrictions we however challenge the common wisdom that unbiased contests are always optimal when contestants are symmetric ex ante or even ex post we show that contests with arbitrary favorites i e biased contests of symmetric players can be optimal in terms of various objectives such as expected aggregate effort the probability to reveal the stronger player as the winner or expected effort of the winner

a theory of affirmative action in college admissions i introduction race conscious preferential admissions have been widely practiced by selective colleges and universities to enhance minority representation in higher education for example the college of arts and sciences at the university of michigan automatically added 20 points out of a possible 150 points to a minority applicant s score in its rating system harvard university has an unofficial lift scheme which also targets minority applicants however controversy has surrounded affirmative action ever since its inception for instance california texas and florida have already terminated the use of race conscious admissions at state funded institutions this debate culminated in the recent supreme court ruling regarding admissions procedures at the university of michigan which endorsed admissions rules that took into account race as a qualifying characteristic unfortunately positive studies on this issue have been scarce relative to the high profile of the debate according to holzer and neumark 1999 theoretical studies of the efficiency of affirmative action on education are virtually nonexistent some have argued that affirmative action is merely a patronage program and necessarily results in mediocracy rather than meritocracy in the debate on affirmative action practices in college admissions a major criticism is that affirmative action designed to create diversity comes at the cost of academic quality a competing view offered by those opposed to affirmative action is that it weakens school applicants incentives to achieve academic excellence for instance justice thomas wrote in his opinion in grutter v bollinger that there is no incentive for the black applicant to continue to prepare for the lsat once he is reasonably assured of achieving the requisite score supporters of this practice tend to emphasize the importance of diversity and the positive influence of diversity on the pedagogical environment steele 1990 these views however do not fully recognize the incentive structure behind affirmative action admissions rules it is unclear how a college admissions rule affects high school students incentives to achieve academic excellence which adds to their human capital stock and future productivity the process of college admissions by and large resembles a contest in which contestants exert costly effort in order to win a limited number of prizes in the context of college admissions to compete for a limited number of seats in the incoming class college candidates have to present their academic credentials such as gpa and sat score to the admissions officer to win the seat high school students have to invest in their human capital which improves the academic performance whereas the academic investments are costly and nonrefundable regardless of the outcome for example the tuition the money spent on books the salary paid to tutors the time and energy and so on all of these features may be approximated by an all pay auction mechanism we propose a simple theoretical framework that models the process of college admissions as an all pay auction to investigate two major questions is there any theoretical rationale for an affirmative action admissions rule how do such rules affect college candidates incentives to invest in academic effort two candidates one a minority and the other a nonminority simultaneously choose their academic efforts human capital investments to compete for a seat in a college we show that an academic quality oriented college prefers to adopt an admissions rule that scales up the test score of the minority relative to the nonminority although this rule is designed purely to maximize the expected academic quality of the incoming class it turns out to favor the minority and create ethnic diversity we show that the unique equilibrium affirmative action admissions rule creates a positive cross group interaction between college candidates incentives to make educational effort

promotion signaling discrimination and positive discrimination policies this article studies discrimination in a model in which promotions are used as signals of worker ability the model can account for statistical and taste based discrimination in the short run a positive discrimination policy is beneficial for workers in the middle of the ability distribution because these workers are promoted if and only if the policy is in place instead workers of either high or low ability suffer from the policy in the long run the policy benefits all targeted workers the model can explain empirical findings about the effects of a gender quota on the boards of norwegian companies

technology choice relative performance pay and worker heterogeneity abstract we identify a new problem that may arise when heterogeneous workers are motivated by relative performance pay if workers abilities and the production technology are complements the firm may prefer not to adopt a more advanced technology even though this technology would costlessly increase each worker s productivity due to the complementarity between ability and technology under technology adoption the productivity of a more able worker increases more strongly than the productivity of a less able colleague as a consequence both workers motivation to exert effort is reduced we show that this adverse incentive effect is dominant and consequently keeps the firm from introducing a better production technology if talent uncertainty is sufficiently high and or monitoring of workers is sufficiently precise

college assignment as a large contest abstract we develop a model of college assignment as a large contest wherein students with heterogeneous learning costs compete for seats at vertically differentiated colleges through the acquisition of productive human capital we use a continuum model to approximate the outcomes of a game with large but finite sets of colleges and students the continuum approximation lends tractability to a rich model for studying investment incentives in rank order competitions by incorporating two common families of affirmative action mechanisms into our model admissions preferences and quotas we can show that legal admissions preference schemes and illegal quotas have the same sets of equilibria including identical outcomes and investment strategies

equity in infrastructure finance when are impact fees justified to the extent that impact fee financing of infrastructure replaces the property tax it shifts payment from owners of existing property to parties associated with newly devel oping property rapid growth in a community is often cited as justification for this shift a model of intergenerational equity is proposed based on benefit principle taxation and capitalization of tax costs and infrastructure benefits the study concludes that rapid growth per se need not bur den existing property owners unfairly unantici pated rapid growth on the other hand can lead to excess tax burdens on existing residents that may appropriately be mitigated through impact fees jel r11

balance of power and the propensity of conflict we study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict our experimental results suggest in a simple bargaining game with an exogenous mediation proposal the likelihood of conflict is independent of the balance of power if bargaining involves endogenous demand choices however the likelihood of conflict is higher if power is more imbalanced even though endogenous bargaining outcomes reflect the players unequal fighting strengths strategic uncertainty causes outcomes to be most efficient when power is balanced in turn the importance of exogenous mediation proposals depends on the balance of power

measuring effort incentives in a tournament with many participants theory and application i introduction a tournament competition in which rewards are determined by the relative rank rather than the absolute performance typically arises when there is competition for limited spaces this kind of competition is ubiquitous there is competition for promotion to a limited space in any kind of hierarchical organization including firms grants or scholarships have a limited amount of funds to be distributed and universities have a limited number of enrollment slots and as such students have to compete to obtain a space it is of great interest how effort incentives change in response to a change in a tournament structure the designer of a tournament is free for one reason or another to choose the size of prizes or the proportion of winners for example given a total amount of prizes rewards may be concentrated at the top ranking or spread out down to middle rankings we can give the top prizes to a very limited portion of participants or spread throughout among a relatively larger portion these changes will generally affect the participants effort incentives and it would be useful to know the effects although theories can provide some evaluations the predictions are not generally definite incentive effects of a tournament have been quite widely studied green and stokey 1983 lazear and rosen 1981 o keefe viscusi and zeckhauser 1984 among others there also have been some theoretical endeavors to design the optimal contest structure to induce maximal possible efforts from the participants moldovanu and sela 2001 2006 however the evaluation quite often depends on parameter values which can vary in different environments and empirical judgment is still warranted this article is an attempt to empirically evaluate incentive effects of an arbitrary change in a tournament structure based on a theoretical modeling we model a tournament competition with many participants possibly with different abilities we obtain an empirically measurable term from participants optimization conditions of effort choices and show that effort incentives under various competition structures can be ranked by comparing the values of these measurable terms the term employed is related to the empirical densities of the performance distribution at cutoffs when an empirical performance distribution emerges we can find cutoff performances that are borderlines between adjacent prizes for a random participant a density is an ex ante probability that his or her performance will be at this borderline for a participant whose performance is near a cutoff a bit more effort will tip his or her performance into a higher prize area the effort incentive is dependent on these densities along with reward differences therefore the empirical performance distribution contains all the necessary information for the effort incentive as it emerges as a mixture of the ability distribution and the noise of performances we can compare effort incentives with any two arbitrary competition structures as long as they are competitions with many participants as the competition structure changes the performance distribution and the relevant cutoffs will change however they are still observable with information on rewards which can also be changed we can calculate and compare the terms we need the method of this article is different from that of the existing empirical literature in that the current article provides a measure of effort incentives directly from the theoretical model existing literature attempts to measure a change in effort incentives either by directly observing effort levels in an experimental setting or by comparing performances indirectly representing effort levels for example harbring and irlenbusch 2003 report directly observed efforts in different experimental settings to demonstrate the incentive effects of different tournament designs

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

sabotage in tournaments evidence from a laboratory experiment although relative performance schemes are pervasive in organizations reliable empirical data on induced sabotage behavior are almost nonexistent we study sabotage in repeated tournaments in a controlled laboratory experiment and observe that effort and sabotage are higher for higher wage spreads additionally we find that also in the presence of tournament incentives agents react reciprocally to higher wages by exerting higher effort destructive activities are reduced by explicitly calling them by their name sabotage communication among principal and agents can curb sabotage when they agree on flat prize structures and increased output if sabotage is not possible the principals choose tournament incentives more often this paper was accepted by peter wakker decision analysis

inter team contests with power differential abstract we investigate the impact of asymmetry on behavior in inter team contests in asymmetric environments one team has a greater probability of winning given the same contribution level unfair contests or has a lower cost of contributing uneven contests we explore how such asymmetries impact behavior asking how being advantaged or disadvantaged influences contributions we find both advantaged and disadvantaged teams contribute much more than theory predicts but in such a way that ex post winning probabilities of the contests are consistent with theoretical predictions at the individual level contributions are predicted by beliefs about own team and opponent team contributions the determinants of contribution by members of the disadvantaged team differ depending on the nature of asymmetry contributions by the disadvantaged team members are responsive to beliefs about contribution by opponents in unfair contests while in uneven contests they are responsive to beliefs about the contribution by teammates

contests with three or more heterogeneous agents abstract we study monotone equilibrium behavior in contests with observable effort bid where three or more participants have distinct risk attitudes and the monetary value for the prize of each is drawn independently from a distinct distribution these differences can either cause a player to drop out that is always choose zero effort regardless of his valuation or use all or nothing strategies with discontinuous effort choice neither complete drop out nor discontinuous bidding with finitely many gaps is consistent with pure strategy monotone bayesian nash equilibrium in a contest with either ex ante identical players or only two distinct participants

incentives versus sorting in tournaments evidence from a field experiment existing field evidence on rank order tournaments typically does not allow disentangling incentive and sorting effects we conduct a field experiment illustrating the confounding effect students in an introductory microeconomics course selected themselves into tournaments with low medium or high prizes for the best score at the final exam nonexperimental analysis of the results would suggest that higher rewards induce higher productivity but a comparison between treatment and control groups reveals that there is no such effect this stresses the importance of nonrandom sorting into tournaments

affirmative action and the quality fit trade off this paper reviews the literature on affirmative action in undergraduate education and law schools focusing especially on the trade off between institutional quality and the fit between a school and a student we discuss the conditions under which affirmative action for underrepresented minorities urm could help or harm their educational outcomes we provide descriptive evidence on the extent of affirmative action in law schools as well as a critical review of the contentious literature on how affirmative action affects urm law school student performance our review then discusses affirmative action in undergraduate admissions focusing on the effects such admissions preferences have on college quality graduation rates college major and earnings we conclude by examining the evidence on percent plans as a replacement for affirmative action

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

tax competition rent seeking and fiscal decentralization abstract the present paper provides a basis for evaluating fiscal decentralization of expenditure and tax responsibilities by encompassing the literature on tax competition and rent seeking both tax and rent seeking competitions are conceived of as being wasteful and self defeating we find that rent seeking activities account for political distortions which may be mitigated in the process of fiscal decentralization while tax competition results in economic distortions associated with decentralization welfare evaluation should be based on the balance of the political gain and the economic cost

the incentive effects of affirmative action in a real effort tournament abstract affirmative action policies bias tournament rules in order to provide equal opportunities to a group of competitors who have a disadvantage they cannot be held responsible for its implementation affects the underlying incentive structure which might induce lower performance by participants and additionally result in a selected pool of tournament winners that is less efficient in this paper we study the empirical validity of such concerns in a case where the disadvantage affects capacities to compete we conducted real effort tournaments between pairs of children from two similar schools who systematically differed in how much training they received ex ante on the task at hand contrary to the expressed concerns our results show that the implementation of affirmative action did not result in a significant performance loss for either advantaged or disadvantaged subjects instead it rather enhanced the performance for a large group of participants moreover affirmative action resulted in a more equitable tournament winner pool where half of the selected tournament winners came from the originally disadvantaged group hence the negative selection effects due to the biased tournament rules were at least partially offset by performance enhancing incentive effects

ex post unbalanced tournaments tournaments create strong incentives under the assumption that the competition between the agents is balanced if at the outset one agent is stronger than the other the tournament is ex ante unbalanced and incentives break down handicaps can in this case restore incentives in practice competing agents are often overall equally strong but have different sorts of strengths then competition will typically be unbalanced ex post and incentives break down but handicaps cannot be used we show how a simple means introducing the possibility of a tie can often resolve the problem we examine under what conditions incentives are maximized by ties