On the Role of Group Size in Tournaments: Theory and Evidence from Lab and Field Experiments

Economics

Speaker:Pr Daan van Soest , VU University Amsterdam and Tilburg University
Date: Friday 8 October 2010
Time: 16:15
Location: STC\D

Further details

We explore how equilibrium effort in tournaments (for example used as an incentive mechanism in firms) varies with the number of contestants. The probability of winning a tournament is typically assumed to depend on both effort and luck, and this paper begins by showing that the assumed distribution of the shock component is critical in whether equilibrium effort increases with group size, or not. We find that if there is much (little) weight on good draws, equilibrium effort is an increasing (decreasing) function of the number of contestants. As a first test of our theory we utilize a lab experiment, where important features of the theory can be exogenously imposed. We proceed to execute 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. More generally, from a methodological perspective our study showcases the benefits of combining data from both lab and field experiments to test economic theory.