Adding tournament to tournament: Combining between-team and within-team incentives

Abstract

We examine theoretically and experimentally how combining between-team and within-team incentives affects behavior in team tournaments. Theory predicts that free-riding will occur when there are only between-team incentives, and offering within-team incentives may solve this problem. However, if individuals collude, then within-team incentives may not be as effective at reducing free-riding. Consistent with the theoretical predictions, the results of our experiment indicate that although between-team incentives are effective at increasing individual effort, there is substantial free-riding and declining effort over time. Importantly, a combination of between-team and within-team incentives is effective not only at generating effort but also at sustaining effort over time, mitigating free-riding problem, increasing cooperation and decreasing collusion within teams.JEL Classifications: C70, D72, H41

Combining Egalitarian and Proportional Sharing Rules in Team Tournaments to Incentivize Energy-Efficient Behavior in a Principal-Agent Context

“…Our results, obtained in a field setting, support the overall results of Majerczyk et al (2019) from a laboratory experiment to large extents, and provide thus external validity for their results. Due to our setting, we add to the previous results that the effects are sustainable.…”

“…Rosenbaum et al (1980), Wageman (1995), Irlenbusch and Ruchala (2008), and Majerczyk et al (2019) have research questions, and experimental designs derived thereof that are similar to ours. However, these authors conducted (extra)laboratory experiments in which agents made decisions in abstract situations.…”

“…They may be designed as (1) egalitarian sharing of tournament prizes among the team members ( egalitarian tournaments) or (2) as proportional sharing of prizes among the team members according to their individual contribution. Proportional prize-sharing tournaments ( proportional tournaments) have yet to be sufficiently researched (Majerczyk et al, 2019), although they are intensively used in practice (Hwang et al, 2009; Majerczyk et al, 2019; Sisk, 2005) and offer the possibility to eliminate at least three of the following severe adverse side effects of egalitarian team tournaments:…”

“…Consequently, many empirical studies on team tournaments report high levels of variance in efforts (e.g., Nalbantian & Schotter, 1997; Orrison et al, 2004). Majerczyk et al (2019) showed both theoretically and experimentally that proportional sharing rules in team tournaments are effective in increasing sustainable effort by reducing free-riding, increasing cooperation, and decreasing collusion. However, this only empirical evidence so far stems from a laboratory experiment with student participants and abstract decisions on effort levels without conducting real-effort tasks.…”

Experimental Research on Contests

“…Despite overbidding, most studies on group contests find support for the comparative static predictions of the theory. For example, as predicted by the theory, experimental studies find that individual efforts are higher when members of the group are rewarded proportionally to their performance than when they are rewarded equally independent of their performance (Amaldoss et al, 2000;Gunnthorsdottir and Rapoport, 2006;Kugler et al, 2010;Majerczyk et al, 2017). Also, consistent with the theory, behavior of individuals crucially depends on the group impact function, with the perfect-substitutes function generating the highest group effort (Abbink et al, 2010;Ahn et al, 2011;Ke et al, 2013Ke et al, , 2015, the weakest-link function generating the least free-riding (Cason et al, 2012(Cason et al, , 2017Brookins et al, 2018), and the bestshot function generating the highest relative effort by strong players .…”