The perks of being in the smaller team : incentives in overlapping contests

We investigate overlapping contests in multi-divisional organizations in which an individual's effort simultaneously determines the outcome of several contests on different hierarchical levels. We show that individuals in larger units are disadvantaged in the grand (organization-wide) contest for two reasons: First, the incentive to freeride is larger in inter-divisional contests. Second, competition in the intra-divisional contest is fiercer. Both effects lower the marginal utility of effort provision. We test our model in a laboratory experiment and confirm its main predictions. Our results have important consequences for the provision of incentives in organizations and the design of sports competitions.