SELF-SELECTION AND THE EFFICIENCY OF TOURNAMENTS

The literature has shown that the overall efficiency of exogenously imposed tournaments is reduced by a high variance in performance. This article reports results from an experiment analyzing whether allowing subjects to self‐select into different payment schemes is reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament instead of a piece‐rate payment scheme, the average effort is higher and the between‐subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on risk aversion, sorting is efficiency enhancing since it increases the homogeneity of the contestants. (JEL M52, J33, J31, C81, C91)