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Prizes and Incentives: Towards a General Theory of Compensation and Competition
Open accessAbstract
This article analyzes the role of competitive compensation schemes (in which pay depends on relative performance) in economies with imperfect information. These compensation schemes have desirable risk, incentive, and flexibility properties; they provide for an automatic adjustment of rewards and incentives in response to common changes in the environment. When environmental uncertainty is large, such schemes are shown to be preferable to individualistic reward structures; in the limit, as the number of contestants becomes large, expected utility may approach the first-best (perfect information) level. We study the design of contests, including the optimal use of prizes versus punishments and absolute versus relative performance standards. The analysis can also be viewed as a contribution to the multi-agent, single-principal problem.
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Cited by
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Self-citationA Comparison of Tournaments and Contracts
Green, J. R., & Stokey, N. L. (1983) · Journal of Political Economy · doi:10.1086/261153 · Cited by 983
Economic Perspectives on Privatization
Vickers, J., & Yarrow, G. (1991) · Journal of Economic Perspectives · doi:10.1257/jep.5.2.111 · Cited by 831
Incentives and Problem Uncertainty in Innovation Contests: An Empirical Analysis
Boudreau, K. J., Lacetera, N., & Lakhani, K. R. (2011) · Management Science · doi:10.1287/mnsc.1110.1322 · Cited by 830
The Economic Design of Sporting Contests
Szymanski, S. (2010) · The Comparative Economics of Sport · doi:10.1057/9780230274273_1 · Cited by 676
Metadata
- Authors
- Nalebuff, B. J., & Stiglitz, J. E.
- Venue
- The Bell Journal of Economics
- Publisher
- JSTOR
- Published
- 1983
- Volume
- 14
- Issue
- 1
- Pages
- 21
- ISSN
- 0361-915X (ISSN-L)
- OpenAlex
- W4251781751
- Cited by
- 1,111
- References
- 0
- FWCI
- 11.23
- Type
- journal article
- Language
- en
- Open access
- green
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