A Comparison of Tournaments and Contracts
Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk-neutral principal and many risk-averse agents. Each agent's output is a stochastic function of his effort level plus an additive shock term that is common to all the agents. The p...
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| Veröffentlicht in: | The Journal of political economy 1983-06, Vol.91 (3), p.349-364 |
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| container_end_page | 364 |
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| container_issue | 3 |
| container_start_page | 349 |
| container_title | The Journal of political economy |
| container_volume | 91 |
| creator | Green, Jerry R. Stokey, Nancy L. |
| description | Tournaments, reward structures based on rank order, are compared with individual contracts in a model with one risk-neutral principal and many risk-averse agents. Each agent's output is a stochastic function of his effort level plus an additive shock term that is common to all the agents. The principal observes only the output levels of the agents. It is shown that, in the absence of a common shock, using optimal independent contracts dominates using the optimal tournament. Conversely, if the distribution of the common shock is sufficiently diffuse, using the optimal tournament dominates using optimal independent contracts. Finally, it is shown that for a sufficiently large number of agents, a principal who cannot observe the common shock but uses the optimal tournament does as well as one who can observe the shock and uses independent contracts. |
| doi_str_mv | 10.1086/261153 |
| format | Article |
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| ispartof | The Journal of political economy, 1983-06, Vol.91 (3), p.349-364 |
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| language | eng |
| recordid | cdi_proquest_miscellaneous_60700298 |
| source | Jstor Complete Legacy; Worldwide Political Science Abstracts; Business Source Complete; Periodicals Index Online |
| subjects | Absolute Agents Business orders COMPARATIVE ANALYSIS Contracts CONTRACTS, CONTRACT ADMINISTRATORS Distribution functions Economic models ECONOMIC THEORY Economic value Expected utility MODELING, MODELS OBSERVATION Political economy Random variables Randomness Risk aversion SANCTION OF LAW AND SEMI-LEGAL PRIVATE ASSOCIATIONS AND SOCIAL GROUPS, ECONOMIC SANCTIONS Step functions Tournaments & championships Utility Utility functions |
| title | A Comparison of Tournaments and Contracts |
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