Premium Incentives

Working on the project:

Kerstin Pull

In cooperation with:

Werner Güth und René Levinsky (Max-Planck-Institut für Ökonomik Jena)
Ori Weisel (Hebrew University Jerusalem)

Description:

In usual tournaments two or more agents, either individual or teams of employees, compete for a fixed bonus. We speak of premium incentives when the reward for the best performing agent(s) is not fixed but increasing in the firm’s success. We derive the equilibrium of a tournament on premium incentives assuming an experimentally implementable, non-Normal noise distribution. In the experiment always two agents compete and each principal employs three such pairs of employees. Agents repeatedly face the same principal but are randomly rematched with another agent in each round. The experi­mental findings qualitatively confirm the theoretical results.

Publications:

• Güth, Werner; René Levínský, Kerstin Pull, Ori Weisel (2010): Tournaments and Piece Rates Revisited: A Theoretical and Experimental Study of Premium Incentives. Jena: Jena Economic Research Papers No. 2010-039.