Tournaments with prize-setting agents

In many tournaments it is the contestants themselves who deter-mine reward allocation. Labor-union members bargain over wage dis-tribution, and many …firms allow self-managed teams to freely determineinternal resource allocation, incentive structure, and division of labour.We analyze, and test experimentally, a rank-order tournament whereheterogenous agents determine the spread between winner prize andlooser prize. We investigate the relationship between prize spread, un-certainty (i.e. noise between effort and performance), heterogeneityand effort. The paper challenges well-known results from tournamenttheory...