IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v36y2001i4p311-336.html
   My bibliography  Save this article

Competitive prizes: when less scrutiny induces more effort

Author

Listed:
  • Dubey, Pradeep
  • Wu, Chien-wei

Abstract

We consider a principal who is keen to induce his agents to work at their maximal effort levels. To this end, he samples n days at random out of the T days on which they work, and awards a prize of B dollars to the most productive agent. The principal's policy (B,n) induces a strategic game Gamma(B,n) between the agents. We show that to implement maximal effort levels weakly (or, strongly) as a strategic equilibrium (or, as dominant strategies) in Gamma(B,n), at the least cost B to himself, the principal must choose a small sample size n. Thus less scrutiny by the principal induces more effort from the agents. The need for reduced scrutiny becomes more pronounced when agents have information of the history of past plays in the game. There is an inverse relation between information and optimal sample size. As agents acquire more information (about each other), the principal -- so to speak -- must "undo" this by reducing his information (about them) and choosing the sample size n even smaller.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Dubey, Pradeep & Wu, Chien-wei, 2001. "Competitive prizes: when less scrutiny induces more effort," Journal of Mathematical Economics, Elsevier, vol. 36(4), pages 311-336, December.
    • Handle: RePEc:eee:mateco:v:36:y:2001:i:4:p:311-336
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304-4068(01)00079-9
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-364, June.
    3. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 433-446.
    4. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    5. Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
    6. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
    7. Dubey, Pradeep & Haimanko, Ori, 2003. "Optimal scrutiny in multi-period promotion tournaments," Games and Economic Behavior, Elsevier, vol. 42(1), pages 1-24, January.
    8. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
    9. Cowen, Tyler & Glazer, Amihai, 1996. "More monitoring can induce less effort," Journal of Economic Behavior & Organization, Elsevier, vol. 30(1), pages 113-123, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Avrahami Judith & Kareev Yaakov & Uske Tobias & Gueth Werner, 2017. "On the Incentive Effects of Sample Size in Monitoring Agents – A Theoretical and Experimental Analysis," German Economic Review, De Gruyter, vol. 18(1), pages 81-98, February.
    2. Yohan Pelosse, 2014. "Dynamic Difference-Form Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 401-426, June.
    3. Hind Sami & Nadia Joubert & Jean-Louis Rullière, 2010. "Le mieux, ennemi du bien : approche expérimentale du contrôle comme mécanisme de filtrage," Economie & Prévision, La Documentation Française, vol. 0(4), pages 127-146.
    4. Sami, Hind, 2009. "Random monitoring in financing relationships," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 239-252, May.
    5. Yaakov Kareev & Judith Avrahami, 2006. "Choosing Between Adaptive Agents: Some Unexpected Implications of Level of Scrutiny," Levine's Bibliography 321307000000000521, UCLA Department of Economics.
    6. Dubey, Pradeep & Geanakoplos, John, 2010. "Grading exams: 100,99,98,... or A,B,C?," Games and Economic Behavior, Elsevier, vol. 69(1), pages 72-94, May.
    7. Pelosse, Yohan, 2011. "Equivalence of optimal noisy-ranking contests and Tullock contests," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 740-748.
    8. Ichino, Andrea & Muehlheusser, Gerd, 2008. "How often should you open the door?: Optimal monitoring to screen heterogeneous agents," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 820-831, September.
    9. Yaakov Kareev & Judith Avrahami, 2006. "Choosing Between Adaptive Agents: Some Unexpected Implications of Level of Scrutiny," Discussion Paper Series dp436, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    10. Grunewald, Andreas & Kräkel, Matthias, 2022. "Information manipulation and competition," Games and Economic Behavior, Elsevier, vol. 131(C), pages 245-263.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ewerhart, Christian, 2016. "An envelope approach to tournament design," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 1-9.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    3. Timothy Mathews & Tim Blumentritt, 2015. "A sequential choice model of family business succession," Small Business Economics, Springer, vol. 45(1), pages 15-37, June.
    4. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up‐or‐out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325, June.
    5. William Chan & Priscilla Man, 2012. "Help and Factionalism in Politics and Organizations," Southern Economic Journal, John Wiley & Sons, vol. 79(1), pages 144-160, July.
    6. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    7. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    8. Ola Kvaløy & Trond E. Olsen, 2006. "Team Incentives in Relational Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 139-170, January.
    9. Gershkov, Alex & Perry, Motty, 2009. "Tournaments with midterm reviews," Games and Economic Behavior, Elsevier, vol. 66(1), pages 162-190, May.
    10. Pradeep Dubey & Siddhartha Sahi, 2016. "Optimal Prizes," Department of Economics Working Papers 16-03, Stony Brook University, Department of Economics.
    11. Delfgaauw, Josse & Dur, Robert & Non, Arjan & Verbeke, Willem, 2014. "Dynamic incentive effects of relative performance pay: A field experiment," Labour Economics, Elsevier, vol. 28(C), pages 1-13.
    12. Matthias Kräkel, 2006. "Splitting Leagues," Journal of Economics, Springer, vol. 88(1), pages 21-48, June.
    13. Sela, Aner, 2016. "The Optimal Allocation of Punishments in Tullock Contests," CEPR Discussion Papers 11592, C.E.P.R. Discussion Papers.
    14. Pradeep Dubey & Siddhartha Sahi, 2009. "The Allocation of a Prize," Department of Economics Working Papers 09-01, Stony Brook University, Department of Economics.
    15. Fleckinger, Pierre, 2012. "Correlation and relative performance evaluation," Journal of Economic Theory, Elsevier, vol. 147(1), pages 93-117.
    16. Ola Kvaløy & Trond E. Olsen, 2012. "The Rise of Individual Performance Pay," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 493-518, June.
    17. Dmitry Ryvkin & Andreas Ortmann, 2008. "The Predictive Power of Three Prominent Tournament Formats," Management Science, INFORMS, vol. 54(3), pages 492-504, March.
    18. Oliver Gürtler, 2006. "Are 18 Holes Enough for Tiger Woods?," Bulletin of Economic Research, Wiley Blackwell, vol. 58(3), pages 267-284, July.
    19. Dubey, Pradeep & Haimanko, Ori, 2003. "Optimal scrutiny in multi-period promotion tournaments," Games and Economic Behavior, Elsevier, vol. 42(1), pages 1-24, January.
    20. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2015. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 521-569.
    21. Bernd Irlenbusch, 2006. "Experimental perspectives on incentives in organisations," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(1), pages 1-24, February.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:36:y:2001:i:4:p:311-336. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.