Seminars

Abstract: We develop a multi-stage contest design where heterogeneous agents face the prospect of promotion and the threat of demotion from one stage to the next. The theoretical model illustrates how the efficacy of promoting and demoting agents in incentivizing effort depends on ability differences between agents. Specifically, if abilities are homogeneous, the principal is better off pooling agents in one division. However, if abilities are heterogeneous, the principal is better off assigning agents to separate divisions based on ability level, while allowing for agents to be promoted and demoted after each stage of play. The experimental results support the use of promotion and demotion in multi-stage contests when abilities are heterogeneous. In contrast with the theoretical predictions, we did not find significant differences in total effort between the pooled contest and the contest with promotion and demotion when abilities were homogeneous. We believe this discrepancy between the theory and the experimental findings might be due to our participants’ desire to achieve a higher status.

* 본 세미나는 VEAEBES(Virtual East Asia Experimental and Behavioral Economics Seminar series) 주최로 열리는 세미나입니다.

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