Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93810
Authors: 
Gürtler, Oliver
Kräkel, Matthias
Year of Publication: 
2008
Series/Report no.: 
SFB/TR 15 Discussion Paper 234
Abstract: 
We analyze the optimal design of rank-order tournaments with heterogeneous workers. Iftournament prizes do not differ between the workers(uniform prizes), as in the previous tournament literature, the outcome will be ineffcient. In the case of limited liability, the employer may benefit from implementing more than first-best effort. We show that the employer can use individual prizes that satisfy a self-commitment condition and induce effcient incentives at the same time, thus solving a fundamental dilemma in tournament theory. Individual prizes exhibit two major advantages - they allow the extraction of worker rents and the adjustment of individual incentives, which will be important for the employer if he cannot rely on handicaps.
Subjects: 
heterogenous workers
limited liability
rank-order tournaments
self commitment
JEL: 
J33
M12
M52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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