Eriksson, Tor Viking5; Teyssier, Sabrina4; Villeval, Marie-Claire1
1 Department of Economics, Aarhus School of Business, Aarhus BSS, Aarhus University2 Center for Corporate Performance (CCP), Aarhus School of Business, Aarhus BSS, Aarhus University3 Department of Economics and Business Economics, Aarhus BSS, Aarhus University4 University of Konstanz5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
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.
Economic Inquiry, 2009, Vol 47, Issue 3, p. 530-548