Tournaments for the endogenous allocating of prizes within workteams - Theory and experimental evidence

We present a model where compensation within a workteam is determinedendogenously by the use of a rank-order tournament. Team memberscompete in their efforts for the right to propose the distribution of a prizewithin the team. The implementation of a proposal requires the approvalof other team members. Failure to reach an agreement is costly and therole of proposer rotates in the order of members’ efforts. We show in an experimentthat tournaments elicit higher efforts than random determinationof the proposer role. Proposers get a significantly larger share of the prizethan non-proposers.