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An envelope approach to tournament design

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  • Ewerhart, Christian

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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  • Ewerhart, Christian, 2016. "An envelope approach to tournament design," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 1-9.
    • Handle: RePEc:eee:mateco:v:63:y:2016:i:c:p:1-9
    DOI: 10.1016/j.jmateco.2015.11.004
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    Cited by:

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    More about this item

    Keywords

    Rank-order tournaments; First-order approach; Envelope theorem;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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