Participation Incentives in Rank Order Tournaments with Endogenous Entry
Rank order tournaments, in which the payment to an agent is based upon relative observed performance, are a commonly used compensation scheme. In practice, agents often compete in some (but not all) events in a set of tournaments. The present study considers two mutually exclusive tournaments, in which agents themselves decide which event to enter. An agent bases this decision upon the combination of three distinct effects: a prize effect, a winning probability effect, and an effort cost effect. The precise impact of each of these effects is analyzed. Of particular interest is the possibility that a field of higher quality may be attracted to the event with smaller prizes.