The purpose of this study is to investigate the <i>use of</i> competitive compensation between a manager and a worker in the laboratory. To this end, we impose a simple agency relationship between two groups of subjects termed managers and workers. The manager chooses a compensation scheme for the...

We experimentally study overbidding in contests and find that overbidding is significantly higher when subjects are given a large per-experiment endowment rather than when the endowment is given per-period. Risk-aversion and non-monetary utility of winning can partially explain our findings.