Performance Responses to Competition across Skill-Levels in Rank Order Tournaments: Field Evidence and Implications for Tournament Design

Tournaments are widely used in the economy to organize production and innovation. We study individual data on 2,775 contestants in 755 software algorithm development contests with random assignment. The performance response to added contestants varies non-monotonically across contestants of different abilities, precisely conforming to theoretical predictions. Most participants respond negatively, while the highest-skilled contestants respond positively. In counterfactual simulations, we interpret a number of tournament design policies (number of competitors, prize allocation and structure, number of divisions, open entry) and assess their effectiveness in shaping optimal tournament outcomes for a designer.

Hypotheses/research question 
What is the relationship between performance and competition across the distribution of ability? The researchers aim to clarify heterogeneous responses in terms of effort across competitors of different ability levels. Theory predicts that as the number of competitors increases, competitors with the lowest ability have little response, competitors with intermediate ability respond negatively, and competitors with the highest ability respond positively.
Study design 
Natural field experiment
Lakhani, K., Boudreau, K., & Menietti, M., [forthcoming]. 'Performance Responses To Competition Across Skill-Levels In Rank Order Tournaments: Field Evidence and Implications For Tournament Design'. Management Science.