An envelope approach to tournament design

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Abstract

Optimal rank-order tournaments have traditionally been studied using a first-order approach. The present analysis relies instead on the construction of an "upper envelope" over all incentive compatibility conditions. It turns out that the first-order approach is not innocuous. For example, in contrast to the traditional understanding, tournaments may be dominated by piece rates even if workers are risk-neutral. The paper also offers a strikingly simple characterization of the optimal tournament for quadratic costs and CARA utility, as well as an extension to large tournaments.

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APA

Ewerhart, C. (2016). An envelope approach to tournament design. Journal of Mathematical Economics, 63, 1–9. https://doi.org/10.1016/j.jmateco.2015.11.004

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