Tournaments are widely used to assign bonuses and determine promotions because of the link between relative performance and rewards. However, performing relatively well (poorly) may also yield psychological benefits (pain). This may also stimulate effort. Through a real-effort artefactual field...

We present a model and an experiment that show, in a very general setting, that effort choice under a given linear pay-for-performance contract depends on how the financial risk associated with the scheme interacts with effort. We find that, under a given contract, if risk increases with effort,...