Working Paper: NBER ID: w20008
Authors: John A. List; Daan van Soest; Jan Stoop; Haiwen Zhou
Abstract: Both private and public organizations constantly grapple with incentive schemes to induce maximum effort from agents. We begin with a theoretical exploration of optimal contest design, focusing on the number of competitors. Our theory reveals a critical link between the distribution of luck and the number of contestants. We find that if there is considerable (little) mass on good draws, equilibrium effort is an increasing (decreasing) function of the number of contestants. Our first test of the theory implements a laboratory experiment, where important features of the theory can be exogenously imposed. We complement our lab experiment with a field experiment, where we rely on biological models complemented by economic models to inform us of the relevant theoretical predictions. In both cases we find that the theory has a fair amount of explanatory power, allowing a deeper understanding of how to effectively design tournaments. From a methodological perspective, our study showcases the benefits of combining data from both lab and field experiments to deepen our understanding of the economic science.
Keywords: tournaments; group size; effort levels; luck distribution; experimental economics
JEL Codes: C9; C91; C93; D47; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Group Size (C92) | Equilibrium Effort Levels (D59) |
| Good Luck Outcomes (C52) | Equilibrium Effort Levels (D59) |
| Group Size (C92) | Individual Effort Levels (D29) |
| Distribution of Luck (D39) | Equilibrium Effort Levels (D59) |
| Distribution of Luck (D39) | Individual Effort Levels (D29) |