Consider an employer who wants her employee to work hard. As is well known from the e.ciency wage literature, the employer must pay the (wealth-constrained) employee a positive rent to provide incentives for exerting unobservable e.ort. Alternatively, the employer could make effort observable by...

According to the previous literature on hiring, ?rms face a trade-off when deciding on external recruiting: From an incentive perspective, external recruiting is harmful since admission of external candidates reduces internal workers’ career incentives. However, if external workers have high...

In an asymmetric tournament model with endogenous risk choice by the agents it is shown that equilibrium efforts decrease (increase) with risk if abilities are sufficiently similar (different). Risk also affects winning probabilities. The interaction of both effects is analyzed.

Individuals who compete in a contest-like situation (for example, in sports, in promotion tournaments, or in an appointment contest) may have an incentive to illegally utilize resources in order to improve their relative positions. We analyze such doping within a tournament game between two...

Splitting leagues or tournaments seems to be puzzling when agents are homogeneous and splitting leads to a negative competition effect. However, it can be shown that the principal can nevertheless benefit from splitting. First, splitting can be used as a divide-and-rule strategy by the principal...

In the context of principal-agent theory risk is largely seen as a source that causes inefficiencies and lowers incentives and accordingly is not in the principal’s interest. In this paper I compare two different designs of a collective tournament where output in a team is generated through a...

everal empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

Rank-order tournaments are usually modeled simultaneously. However, real tournaments are often sequential. We show that agents’ strategic behavior in sequential-move tournaments significantly differ from the one in simultaneous-move tournaments: In a sequential-move tournament with...

We discuss a principal-agent model in which the principal has the opportunity to include a non-compete agreement in the employment contract. We show that if the agent faces limited liability and there is an incentive problem the principal prefers not to impose such a clause if and only if the...

We analyze the optimal choice of risk in a two-stage tournament game  between two players that have different concave utility functions. At the first stage, both players simultaneously choose risk. At the second stage, both observe overall risk and simultaneously decide on effort or investment....