We consider the implications of banning tournament contracts and replacing them with fixed performance standard contracts in a multi-period model where the principal cannot commit to future contract parameters. A ban cannot increase total surplus in a static model. In a dynamic model, however, a...

Using experimental economics, we compare the efficiency and welfare effects of tournament and fixed standards contracts. Our findings suggest that economic agents are generally better off under fixed standard contracts unless they face substantial common shocks. Administrators of contracts...