Discrimination and Strategic Group Division in Tournaments

The contracts we consider in this paper must solve three problems: moral hazard, insurance and discrimination. The moral hazard problem is that of providing the agents with incentives to perform in a way that maximizes the profit to the principal, when the agent's actions are unobservable. The insurance problem is that of minimizing the cost of risk through risk minimization and risk sharing. The issue of discrimination is that of paying agents with different skills sufficiently to participate, without overcompensating other agents. We show how the principal may benefit from a strategic division of the agents into different tournaments or groups. The optimal number of groups from the principal's point of view is determined through a trade-off between moral hazard, insurance and discrimination issues.


Subject(s):
Issue Date:
2001
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/24183
PURL Identifier:
http://purl.umn.edu/24183
Total Pages:
24
Series Statement:
Unit of Economics Working Paper 2001/6




 Record created 2017-04-01, last modified 2018-01-22

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