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SELF-SELECTION AND THE EFFICIENCY OF TOURNAMENTS

Authors

  • TOR ERIKSSON,

    1. Eriksson: Professor, Department of Economics and Center for Corporate Performance, Aarhus School of Business, Aarhus University, Prismet, Silkeborgvej 2, 8000 Aarhus C, Denmark. Phone +45 8948 6404, Fax +45 8948 6197, E-mail tor@asb.dk
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    • *

      We are grateful to E. P. Lazear, A. Ichino, K. Lang, L. Vilhuber, R. Mohr, K. P. Chen, D. Dickinson, T. Perri, and participants at the NBER Summer Meeting in Boston, at the ESA meeting in Nottingham, at the EALE conference in Prague, and seminars at Academia Sinica (Taipei) and Appalachian State University, for their useful comments and discussions. We also thank an anonymous referee for helpful suggestions. Financial support from the Aarhus School of Business and the French Ministry of Research (ACI InterSHS) is gratefully acknowledged.

  • SABRINA TEYSSIER,

    1. Teyssier: PhD Student, CNRS-GATE, Ecully F-69130; University of Lyon and University of Lyon 2, Lyon F-69007; and University of Lyon 1, Lyon F-69003; ENS LSH, Lyon F-69007, France. Phone +334 7286 6116, Fax +334 7286 6090, E-mail teyssier@gate.cnrs.fr
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    • *

      We are grateful to E. P. Lazear, A. Ichino, K. Lang, L. Vilhuber, R. Mohr, K. P. Chen, D. Dickinson, T. Perri, and participants at the NBER Summer Meeting in Boston, at the ESA meeting in Nottingham, at the EALE conference in Prague, and seminars at Academia Sinica (Taipei) and Appalachian State University, for their useful comments and discussions. We also thank an anonymous referee for helpful suggestions. Financial support from the Aarhus School of Business and the French Ministry of Research (ACI InterSHS) is gratefully acknowledged.

  • MARIE-CLAIRE VILLEVAL

    1. Villeval: Research Professor, CNRS-GATE, Ecully F-69130; University of Lyon and University of Lyon 2, Lyon F-69007; University of Lyon 1, Lyon F-69003; ENS LSH, Lyon F-69007, France; and IZA, Bonn D-53113, Germany. Phone +334 7286 6079, Fax +334 7286 6090, E-mail villeval@gate.cnrs.fr
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    • *

      We are grateful to E. P. Lazear, A. Ichino, K. Lang, L. Vilhuber, R. Mohr, K. P. Chen, D. Dickinson, T. Perri, and participants at the NBER Summer Meeting in Boston, at the ESA meeting in Nottingham, at the EALE conference in Prague, and seminars at Academia Sinica (Taipei) and Appalachian State University, for their useful comments and discussions. We also thank an anonymous referee for helpful suggestions. Financial support from the Aarhus School of Business and the French Ministry of Research (ACI InterSHS) is gratefully acknowledged.


Abstract

The literature has shown that the overall efficiency of exogenously imposed tournaments is reduced by a high variance in performance. This article reports results from an experiment analyzing whether allowing subjects to self-select into different payment schemes is reducing the variability of performance in tournaments. We show that when the subjects choose to enter a tournament instead of a piece-rate payment scheme, the average effort is higher and the between-subject variance is substantially lower than when the same payment scheme is imposed. Mainly based on risk aversion, sorting is efficiency enhancing since it increases the homogeneity of the contestants. (JEL M52, J33, J31, C81, C91)

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