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How Does Team Composition Affect Effort in Contests?

A Theoretical and Experimental Analysis

Hua Chen and Noah Lim+

+Chen:Terry College of Business, University of Georgia, huachen@uga.edu. Lim: Wisconsin School of Business,
University of Wisconsin-Madison, nlim@bus.wisc.edu. Both authors contributed equally.
 How Does Team Composition Affect Effort in Contests?

A Theoretical and Experimental Analysis

Abstract

When companies organize salespeople into teams to compete with one another, how
does the ability composition of team members affect effort? And how may the effect of team
composition on effort depend on the type of contest the teams are competing in? Using a
game-theoretic model, we derive the very sharp predictions that when winning the contest
depends on the average team sales, the ability composition of a team has no effect on team
effort, and the stronger and weaker members will expend identical effort levels. However,
when the contest winner is determined by the minimum or maximum output contribution
within the team, heterogeneity in team composition exerts a deleterious effect on team
effort, with the stronger and weaker members expending unequal effort. Our model also
shows that in a contest between two symmetric teams, when team members are
homogeneous, all three contest metrics yield identical team effort; however, when team
members are heterogeneous, the average metric elicits the highest team effort. We also
discuss cases when the minimum and maximum metrics are optimal. We test the model’s
empirical validity using two incentive-aligned experiments where participants make effort
decisions strategically. The experimental results exhibit broad support for the theoretical
predictions.

Keywords: Sales Contests, Strategic Alliances, Tournaments, Team Incentives, Experimental

Economics
 1

1. Introduction

To motivate their salesforce, many companies employ team-based contests, where

salespeople are organized into sales teams to compete with each other. A natural question
that arises when managers organize salespeople into teams to compete in such contests is:
How does the composition of the team affect the effort levels that salespeople expend?
Specifically, would team effort increase or decrease as members of a team become more
heterogeneous in sales abilities or territorial endowments? How would the stronger and
weaker members of the team adjust their effort as the ability difference within the team
changes? And how might the effect of team composition on salesperson effort depend on the
type of contest metric used to rank the team’s performance? These are important questions
for managers because heterogeneity among team members is often present in practice; that
is, a company’s salesforce may consist of salespeople who have different levels of sales
effectiveness or territorial endowments. Hence, understanding how team composition
affects sales effort can better guide managers when they organize salespeople of different
abilities into teams and when they decide on the contest metric in a team-based contest.

In this paper, we develop a game-theoretic model that investigates the impact of team
composition on effort in contests. In the model, there are two competing teams, each with
two team members who may differ in ability endowments. To focus more sharply on how
heterogeneity within a team affects the effort decisions of team members, we keep the team
composition identical between the competing teams in our basic model. 1 While sales
managers commonly rank sales teams based on the average output, the metric by which
teams are ranked can also be a decision variable when managers design a team contest. Our
model examines effort across three types of team contests which differ in how the contest
winner is determined. Specifically, the team that wins the contest may be the one with 1) the
higher average output, 2) the higher of the minimum output contribution within a team, or
3) the higher of the maximum output contribution within a team.2 The latter two contest

1 For the same reason, we also assume that there are no production complementaries when the team members work
together.
2 These three ways of determining a team’s output were first introduced by Hirshleifer (1983) in the context of studying
public goods contributions.
 2

metrics are often used in technology contests and product development races. In this study,
we apply them to the context of sales contests, which allows us to determine the optimal
contest metric in a team contest, for a given ability composition within a sales team.

Our analysis shows that marketing theory makes a very strong assertion about effort
in the contest where winning depends on the average team output: total team effort will be
invariant to the ability composition within the team, and both the stronger and weaker
members in the team will expend identical effort levels. In other words, managers need not
worry about the effect of team composition under the average metric. We also show that this
result is robust to cases where team members face correlated demand shocks, when
competing teams are asymmetric but have the same total ability endowments, and when
salesperson heterogeneity is modeled using a specification different from our basic model.
However, in contests where the winner is determined by the minimum or maximum output
contribution within the team, theory predicts that heterogeneity in team composition exerts
a deleterious effect on total team effort. Moreover, the stronger and weaker members will
choose unequal effort levels, with the former choosing lower (higher) effort in the contest
that depends on the minimum (maximum) contribution.

Our model also demonstrates that team composition can affect the type of contest
metric managers should use. When team composition is homogeneous, the average,
minimum, and maximum metrics elicit the same levels of team effort, so all three metrics are
equally effective. When the team is made up of salespeople who are heterogeneous, the
average metric yields the highest team effort. However, we also find that the minimum and
maximum metrics can be optimal when we relax the assumptions of our model: Specifically,
the minimum metric can elicit the highest effort when the competing teams are asymmetric,
while the maximum metric can be optimal when team members have very different costs of
expending effort.

Because some of the theoretical predictions are quite strong, we subject them to
empirical testing using two laboratory economics experiments where participants interact
strategically and make effort decisions that are incentive-aligned. This empirical approach
not only assures exogenous variation in team composition, but also yields the tightest
possible control over the key structural assumptions of the model. In particular, it allows the
 3

researcher to cleanly specify the difference in ability endowments between team members,
which is a variable that can be extremely hard to measure in the field. 3 In the first
experiment, we examine effort decisions when the team composition is homogeneous versus
when it is heterogeneous, for each of the three types of contests, making a total of six
treatments. In the second experiment, we focus on the contest with the average metric and
test our model prediction (that team effort will be unaffected by the team composition) when
salesperson heterogeneity is modeled using a different specification. Interestingly, the
experimental results exhibit strong qualitative support for the main theoretical predictions.4

Relation and Contribution to the Literature. This paper is related to three streams of
research in marketing. First, our paper is related to the marketing literature on designing
effective sales contests. Kalra and Shi (2001) and Lim (2010) focused on the optimal number
of prizewinners in contests where salespeople are homogeneous in abilities. Orrison et al.
(2004), Chen et al. (2011), and Ridlon and Shin (2013) examined effort decisions in contests
with heterogeneous contestants. The focus of all these papers is on individual-based contests,
where salespeople compete based on their own output. Recently, Chen and Lim (2013)
showed that team-based contests, which had been observed to elicit the highest effort among
different types of team-based incentives (Nalbantian and Schotter 1997), can outperform
individual-based contests when social ties among salespeople in the team are strong. In their
paper however, the team members are assumed to be homogeneous in abilities and teams
are ranked only by the average metric. We contribute to the sales management literature by
examining effort decisions when sales agents competing in teams are heterogeneous in
abilities, under different contest metrics that managers can employ when designing team
contests.

Second, our work is related to two recent papers that examine how the composition
of sales teams affects revenue outcomes under different compensation schemes. Using a
novel dataset from a Chinese departmental store that housed multiple cosmetics counters

3 Other assumptions that may be difficult to satisfy in the field include having identical competing teams and having teams
clearly identify the type of contest they are competing in (i.e., based on average output, minimum contribution, etc.).
4It is important to note that experimental tests of analytical models in marketing may not always offer strong support for
the theory predictions. Examples of these include Ding et al. (2005) and Ho and Zhang (2008). In other cases (e.g., Amaldoss
and Jain 2005, Wang and Krishna 2006, Yuan and Han 2011), the experimental outcomes are consistent with the theoretical
results.
 4

and exploiting the fact that salespeople of different abilities were assigned to work together
at the counters during different times of the week, Chan et al. (2014a) documented that
heterogeneous teams perform better than homogeneous ones, but only when the
salespeople earn commissions based on group sales. When salespeople are paid
commissions on individual sales, the heterogeneous teams perform worse relative to
homogeneous ones. In a related paper (Chan et al. 2014b), the authors provide evidence that
in the counters which adopted group-based commissions, the lower-ability salespeople
increased their sales effectiveness by learning from their higher-ability co-workers. In this
paper, we find that heterogeneity in team composition does not lead to higher team effort
across many contest scenarios. However, this does not imply a contradiction between our
findings and those of the extant research on team composition: First, while our paper
contributes to the literature by being the first to theoretically examine the effect of team
composition when salespeople compete in teams, it does not cover all possible contest
scenarios. More importantly, in our model, we do not allow for the possibility that the sales
productivity of a team member can be expanded through knowledge transfer between co-
workers. In this respect, our work complements these two papers by suggesting that
heterogeneous teams may yield better outcomes than homogeneous teams, but there must
be sufficient benefit from the expansion of salespeople’s production frontiers when team
members of different abilities work together.

Third, our paper builds upon the literature on product development contests
pioneered by Amaldoss et al. (2000). These contests are often team-based in nature, i.e.,
companies form strategic alliances to compete with other alliances. Their paper studied how
investment commitments by members in an alliance depend on the way rewards from
winning the contest are divided (i.e., equal split versus proportional to contribution) and also
how the contest winner is determined – either based on the total team output or the
maximum contribution in the team. Other critical factors that affect investment levels such
as the number of members in an alliance, the number of competing teams, and whether the
investments made by teams are recoverable were examined in Amaldoss and Rapoport
(2005). Amaldoss and Staelin (2010) extended the analysis to team contests where the
alliance structure can be characterized as same-function or cross-function, so that the team
 5

output function takes different forms. In these papers, due to the different focus in research
questions, the team members were specified to be homogeneous within the alliance. Our
paper adds to this research stream by allowing for heterogeneity in the ability endowment
of team members, and also examines effort in contests where the winner is determined by
the minimum contribution in the team.

The rest of the paper is organized as follows. In Section 2, we theoretically examine

how changes in the team composition may affect salesperson effort in a contest. We begin by
analyzing a team contest based on the average sales of the team, followed by contests based
on the minimum and maximum individual sales within the team. We then examine which
contest metric yields the highest team effort. In Section 3, we report the results of two
experiments designed to check the empirical validity of the theoretical predictions. Section
4 concludes with a discussion of the paper’s managerial implications, limitations and future
directions for this research.

2. Theoretical Model

We begin our analysis by focusing on the sales contest where sales teams compete
based on the team’s average sales. We examine how changes in the composition of the team
(i.e., from homogeneous to heterogeneous) affect salespeople’s individual effort levels and
the total team effort. In our basic model, we assume that the competing teams are symmetric
in team composition. After that, we relax the assumptions of the basic model to allow for
asymmetric competing teams, correlated demand shocks within the team, and within-team
competition. We also examine how the theoretical results would change when we model
salesperson heterogeneity differently.

Next, we consider how the ability composition of sales teams would affect
salesperson effort in two other types of sales contests – one based on the minimum
individual sales in the team, and the other based on the maximum individual sales in the
team. We start by characterizing the effort of the stronger and weaker team members in
these contests, and end by discussing how team composition affects the type of sales contest
managers should employ.
 6

2.1. Effect of Team Composition on Effort in Team Contests Based on Average Sales

2.1.1. Basic Model

Model Setup. Consider a sales contest that consists of two competing teams, with each team
having two salespeople. The sales manager’s objective is to elicit the highest total effort
across the teams (since higher sales effort translates into higher firm revenues, and the
payout in the contest is fixed). The two teams compete with each other based on the team
output, Yt (where t = 1, 2 represents the teams), which equals the average of the individual
sales within the team. The team with the higher team output wins the contest and receives
2WH as the winning prize. This prize is equally split between the two salespeople, so that
each salesperson in the winning team receives WH. We assume that each salesperson in the
losing team receives a lower prize of WL ≥ 0.

Let Stp (where p = 1, 2) represent each salesperson in team t. The sales of Stp is ytp= etp
+ ktp + εtp, where etp is the effort expended by the salesperson, and εtp is uniformly distributed
over the interval [–q, q] and independent across salespeople. The stochastic term εtp reflects
the part of a salesperson’s sales that is outside his control, such as demand shocks. The
parameter ktp ≥ 0 is an additive constant that represents the ability endowment of the
salesperson. Differences in ktp can occur when salespeople have built up different levels of
recurring sales, or when the size of the customer base in their sales territories differ. Later
in this paper, we will discuss the alternative specification where a salesperson’s ability is
captured through the costs of expending effort.

Within each competing team, we can assume kt1 ≥ kt2 without loss of generality. We
use the parameter d = kt1 − kt2 to capture the possible heterogeneity between the two
salespeople within the team. To facilitate the theoretical analyses, we restrict the value of d
to be in the interval [0, q] in this paper. When d = 0, salespeople in the same team are
homogeneous in ability endowments. We refer to this type of team as a Homogeneous Team.
When d > 0, salesperson St1 has a higher ability endowment than his teammate St2, and we
refer to this type of team as a Heterogeneous Team. Furthermore, when d > 0, we term
salesperson St1 the “stronger member” and St2 the “weaker member”.

Since the focus of this paper is to examine the effect of within-team heterogeneity on
salespeople’s effort, we assume that the team composition is symmetric across the
 7

competing teams, i.e., k1p = k2p. In other words, while the ability composition within a team
may vary through d, the ability endowments of the stronger and weaker members across the
competing teams are equivalent. This also implies that the total ability endowments kt1 + kt2
are identical across the teams. We also assume that when a team is homogeneous, it also
competes with another homogeneous team with the same total ability endowment. Later, we
will relax these assumptions and examine the cases when the two competing teams are
asymmetric in team composition and when the total ability endowments across rival teams
differ.

Salesperson Utility. The salespeople are assumed to be risk neutral and have identical utility
functions that are separable in the contest outcomes and the cost of effort expended.5 Each
salesperson maximizes his expected utility by choosing an effort level that trades off the
payoff from winning the contest and the cost of effort. Using Prob(Win) to denote the
probability that a salesperson receives the winning prize WH (i.e., his team wins the contest),
the expected utility of salesperson i (i = S11, S12, S21, or S22) is given by

𝐸𝑈𝑖 = Prob(𝑊𝑖𝑛) × 𝑊𝐻 + [1 − Prob(𝑊𝑖𝑛)] × 𝑊𝐿 – 𝑐(𝑒𝑖 ), (1)

where c(ei) is the cost of effort, which is assumed to be an increasing and convex function in
effort. Using 𝑒−𝑖 to represent the vector of effort decisions of i’s teammate and the other two
salespeople in the competing team, and assuming 𝑐(𝑒𝑖 ) = 𝑏𝑒𝑖2 , we obtain the following first
order condition for salesperson i in the team contest:
𝜕Prob(𝑊𝑖𝑛)
(𝑒𝑖 , 𝑒−𝑖 ) × [𝑊𝐻 − 𝑊𝐿 ] − 2𝑏𝑒𝑖 = 0, (2)
𝜕𝑒𝑖

∂Prob(𝑊𝑖𝑛)
where the term is the marginal probability of winning the contest, which is the
∂𝑒𝑖

increase in the probability of receiving WH due to an increase in effort. Equation 2 implies

that when the marginal probability of winning (MPW) is higher, a salesperson will expend
higher effort.

In the contest between two Homogeneous Teams (i.e., d = 0 in each team), the
symmetric pure-strategy equilibrium effort in the homogeneous contest, 𝑒 ∗ (with 𝑒11
∗
=
∗
𝑒12 ∗
= 𝑒21 ∗
= 𝑒22 = 𝑒 ∗ ) is the solution to the following first order condition:

5Relaxing the risk neutrality assumption by allowing salespeople to be risk averse will decrease the absolute levels of
equilibrium effort but not affect the major theoretical results.
 8

𝜕Prob(𝑊𝑖𝑛)
(𝑒𝑖∗ = 𝑒 ∗ ) × [𝑊𝐻 − 𝑊𝐿 ] − 2𝑏𝑒𝑖 = 0. (3)
𝜕𝑒𝑖

In the contest between two Heterogeneous Teams (i.e., d > 0 in each team), the symmetric
pure-strategy equilibrium for the stronger member and the weaker member in each team,
given by 𝑒𝑠∗ (where 𝑒11
∗ ∗
= 𝑒21 = 𝑒𝑠∗ ) and 𝑒𝑤
∗
(where 𝑒12
∗ ∗
= 𝑒22 ∗
= 𝑒𝑤 ), respectively, can be
obtained from the following first order condition:
𝜕Prob(𝑊𝑖𝑛) ∗
(𝑒𝑡1 ∗
= 𝑒𝑠∗ , 𝑒𝑡2 ∗
= 𝑒𝑤 ) × [𝑊𝐻 − 𝑊𝐿 ] − 2𝑏𝑒𝑖 = 0. (4)
𝜕𝑒𝑖

Equilibrium Effort. We first analyze the effort levels of the stronger and weaker members,
followed by the effect of team composition on the team effort. In this contest, the output of
team t is Yt = (yt1 + yt2)/2 = (et1 + kt1 + εt1 + et2 + kt2 + εt2)/2. Therefore, the team’s probability
of winning the contest is:
𝑦𝑡1 +𝑦𝑡2 𝑦−𝑡1 +𝑦−𝑡2
Prob(Win) = Prob( > )
2 2

𝑒𝑡1 +𝑘𝑡1 +𝜀𝑡1 +𝑒𝑡2 +𝑘𝑡2 +𝜀𝑡2 𝑒−𝑡1 +𝑘−𝑡1 +𝜀−𝑡1 +𝑒−𝑡1 +𝑘−𝑡2 +𝜀−𝑡2
= Prob( > )
2 2
𝑒𝑡1 +𝜀𝑡1 +𝑒𝑡2 +𝜀𝑡2 𝑒−𝑡1 +𝜀−𝑡1 +𝑒−𝑡2 +𝜀−𝑡2
= Prob( > ), (5)
2 2

where –t represents the competing team. Note that, as shown in Equation 5, (kt1 + kt2) in Yt
cancels out in the comparison of average sales across teams, so neither the level of kt1 nor kt2
(and hence the value of d) affects the probability that a team wins the contest. This also
implies that the MPW for each team member is unaffected by kt1 or kt2.

Since the stochastic term εtp enters at the individual salesperson level, solving for the
equilibrium effort involves characterizing the convolution of the distribution of the
individual-level noise terms, which makes the derivation of the MPW of a team member
analytically quite complex. We show the details of this derivation in Appendix A1 and present
∂Prob(𝑊𝑖𝑛)
the expressions for in Table 1. From the table, we can see that the marginal
∂𝑒𝑖
1
probability of winning the contest, both when d = 0 and d > 0, reduces to 3𝑞 for every team

member when evaluated at the point of the symmetric pure-strategy equilibrium.

[Insert Table 1 about here]

According to Equations 3 and 4, having the same MPW implies expending the same
effort level. Hence, our theoretical model predicts that when the team composition is
 9

heterogeneous (d > 0), both the stronger and weaker members in the team will put in the
same effort level, that is, 𝑒𝑠∗ = 𝑒𝑤
∗
. Interestingly, the model also predicts that this effort level
is identical to the case where the team composition is homogeneous (d = 0).

Proposition 1A. When winning the contest depends on the average sales of a team and the
team composition is heterogeneous, both the stronger and weaker members exert identical
levels of effort.
Proposition 1B. When winning the contest depends on the average sales of a team, total team
effort is unaffected by the ability composition of the team.
The intuition behind Propositions 1A and 1B is as follows: even though the stronger
member has an advantage in ability endowment over the weaker member, their marginal
impacts on the probability of winning the contest through increasing effort becomes the
same, because the ability difference cancels out in the across-team comparison. Hence, both
the stronger and weaker team members assume equal responsibility for their team’s
outcome in the contest, as in the case for the homogeneous team.

2.1.2. Model Extensions and Boundary Conditions for the Theoretical Results

Our basic model makes the very sharp predictions that salespeople with different
abilities will expend identical levels of effort (Proposition 1A) and that different levels of
within-team heterogeneity do not affect team effort (Proposition 1B). We now extend the
model in three directions and examine when these predictions might still hold.

Correlated Demand Shocks in Sales Teams. In the basic model, we assume that the demand
shocks faced by salespeople in the team are independently and identically distributed.
However, another plausible assumption is that the demand shocks faced by team members
are correlated. This could happen, for example, when team members have customers in the
same industries. We start with the special case where the demand shocks faced by
salespeople in the same team have perfect positive correlation.6 In the contest based on the
average sales, the team output now becomes Yt = (et1 + kt1 + εt1 + et2 + kt2 + εt2)/2 = (et1 + kt1 +
et2 + kt2 + ηt)/2, where ηt = εt1 + εt2 is uniformly distributed on the interval [–2q, 2q]. This is

6 We assume that the demand shocks remain independent across teams. Note also that if the demand shocks within a team
exhibit perfect negative correlation, the sum of random shocks within a team is always zero. As a result, there is no pure-
strategy Nash equilibrium in the contest.
 10

equivalent to the case where the demand shock enters the output function at the team level.
Following the way we derive the salespeople’s MPW in our basic model, we can show that
1
the MPW for both the stronger and weaker members are still identical at 4𝑞, for both the

homogeneous (d = 0) and heterogeneous (d > 0) teams.7 This means that both the stronger
and weaker members expend the same effort, and that the team effort does not vary with
changes in within-team ability composition. In other words, Propositions 1A and 1B are
robust to the case where team members face identical demand shocks.

Next, we examine the case of correlated demand shocks more generally. To account
for correlated demand shocks, we can model each salesperson’s sales Stp as ytp= etp + ktp + εtp
+ γt, where γt is an additional stochastic term that represents the common demand shock
that affects the output of salespeople within the same team and is independent of εtp.8 This
way of capturing correlated demand shocks has been used in the extant literature on
tournaments (e.g., Schotter and Weigelt 1992, Kalra and Shi 2001). In this scenario, the
probability of winning the team contest becomes
𝑦𝑡1 +𝑦𝑡2 𝑦−𝑡1 +𝑦−𝑡2
Prob(Win) = Prob( > )
2 2

𝑒𝑡1 +𝑘𝑡1 +𝜀𝑡1 +𝑒𝑡2 +𝑘𝑡2 +𝜀𝑡2 +2𝛾1 𝑒−𝑡1 +𝑘−𝑡1 +𝜀−𝑡1 +𝑒−𝑡1 +𝑘−𝑡2 +𝜀−𝑡2 +2𝛾2
= Prob( > )
2 2

𝑒𝑡1 +𝜀𝑡1 +𝑒𝑡2 +𝜀𝑡2 +2𝛾1 𝑒−𝑡1 +𝜀−𝑡1 +𝑒−𝑡1 +𝜀−𝑡2 +2𝛾2
= Prob( > ). (6)
2 2

Note that (kt1 + kt2) in Yt cancels out in the across-team comparison, as in the case when
demand shocks are independent between team members. The MPW for each salesperson is
therefore unaffected by kt1 or kt2, so that both team members expend equal effort. Moreover,
total team effort does not change as the ability mix in the team varies. Hence, both
Propositions 1A and 1B hold when demand shocks are correlated within the team.

Asymmetric Competing Teams. In our basic model, we assume that the competing teams
are symmetric in team composition, i.e., k1p = k2p across the two teams. When k1p ≠ k2p for any

7The detailed derivations of the salespeople’s MPW for all cases discussed in this paper are available from the authors upon
request.
8
Note also that ytp= etp + ktp + εtp + γt can be rewritten as ytp= etp + ktp + ηtp, where ηtp = εtp + γt, which represents the overall
stochastic effect on individual output. The correlation coefficient of ηt1 and ηt2, ρ(ηt1, ηt2), can be of any value between 0 and
1, depending on the relative magnitude of Var(γt) and Var(εtp). In this way, by incorporating a common random shock γt
into the individual output function, we can assume any level of positive correlation between random shocks faced by
salespeople within a team.
 11

p =1, 2, the competing teams are now asymmetric in team composition. There are multiple
ways in which asymmetry between the teams can be operationalized – in this paper, we focus
the analysis on two scenarios.

In the first scenario (ASY1 hereafter), the two teams are asymmetric in team
composition, i.e., k1p ≠ k2p, but have identical total ability endowments at the team level,
i.e., ∑ 𝑘1𝑝 = ∑ 𝑘2𝑝 . This implies that the degree of within-team heterogeneity d = kt1 – kt2 must
be different across teams. Moreover, kt1 – kt2 can be zero in one (and only one) team. To
illustrate this scenario more clearly, consider the specific example where k11 = k12 + d and k21
= k22 = k12 + d/2, where d > 0. This means that in one team (call this team 1), the first
salesperson has the highest ability endowment while the second salesperson has the lowest
ability endowment among the four salespeople across the two teams. In the other team (call
this team 2), both salespeople have the same ability endowment, which equals the average
ability endowment of team 1. In this scenario, when we specify the team’s probability of
winning (as in Equation 5), because the total ability endowments across teams are identical,
the terms ∑ 𝑘𝑡𝑝 cancel out in the across-team comparison. Hence, similar to the basic model,
neither the level of kt1 or kt2 (and hence the value of d) affects the MPW for the salesperson.9
The predictions in Propositions 1A and 1B continue to hold – salespeople expend identical
effort, and total effort does not change with the ability composition of the team.

In the second scenario (ASY2 hereafter), the two teams have different total ability
endowments, i.e., ∑ 𝑘1𝑝 ≠ ∑ 𝑘2𝑝 . Without loss of generality, we assume that team 1 has a
higher total ability endowment than team 2, i.e.,∑ 𝑘1𝑝 > ∑ 𝑘2𝑝 . Letting ∑ 𝑘1𝑝 − ∑ 𝑘2𝑝 = 𝐿,
where L lies within the range of [0, 2q], we can characterize the MPW for each salesperson
following the same method used for the basic model. Interestingly, we find that the MPW is
1 𝐿2 𝐿3
still identical across all four salespeople in the contest, and equals 3𝑞 − 8𝑞3 + 32𝑞4 regardless

of each team’s ability composition (i.e., the level of d = kt1 – kt2 in each team). Hence,
salespeople of different ability endowments exert the same level of effort. However, note that
1
the MPW in this scenario is lower compared to that in the basic model (which equals 3𝑞). This

9 Note that this result applies not only to the specific example, but to all cases where k1p ≠ k2p and ∑ 𝑘1𝑝 = ∑ 𝑘2𝑝 .
 12

means that both the individual and total team effort in the ASY2 scenario are lower when
compared to the case where two teams have identical total ability endowments, regardless
of whether the team composition is symmetric (our basic model) or asymmetric (the ASY 1
scenario) across the teams. The implication is that if a manager is designing a team-based
contest that involves salespeople of different ability levels, she can elicit higher effort levels
if she sorts salespeople into teams that are as balanced in total ability endowments as
possible. This is because it is the heterogeneity in ability endowments across teams (L), but
not the within-team heterogeneity (d), that lowers effort.

Alternative Prize Sharing Rule and Within-Team Competition. In our basic model, we
assume that both members within the team will receive the same prize. A major supporting
reason for this assumption is that team-based sales contests are much more effective when
the social ties among team members are strong (Chen and Lim 2013): If members from the
same team receive different prizes depending on how they fare within their team, such
within-team competition may weaken the social ties that underpin the rationale for
employing team contests. Nevertheless, we now consider how effort would vary if team
members do not receive the same prize. One way to operationalize this alternative prize
sharing rule is to allow the salesperson with the higher sales in the team to receive an
additional bonus of Δ (where WL ≥ Δ >0), while the team member with the lower sales gives
up an additional Δ from his prize. In other words, regardless of whether a team wins the
contest, the higher performer receives 2Δ more than his teammate. In this case, the
salesperson’s utility function now becomes:

𝐸𝑈𝑖 = Prob(𝑊𝑖𝑛) × 𝑊𝐻 + [1 − Prob(𝑊𝑖𝑛)] × 𝑊𝐿 + Prob(𝐻𝑖𝑔ℎ) × Δ

−[1 − Prob(𝐻𝑖𝑔ℎ)] × Δ – 𝑐(𝑒𝑖 ), (7)
where Prob(High) represents the probability that a salesperson achieves higher sales than
his teammate. The first order condition now becomes:
𝜕Prob(𝑊𝑖𝑛) 𝜕Prob(𝐻𝑖𝑔ℎ)
× [𝑊𝐻 − 𝑊𝐿 ] + 2 × Δ − 2𝑏𝑒𝑖 = 0. (8)
𝜕𝑒𝑖 𝜕𝑒𝑖

Solving the model under this prize sharing rule, we find the following: 1) Regardless
of the composition within the team, the marginal probability of winning the
𝜕Prob(𝑊𝑖𝑛) 1
contest remains for every salesperson; 2) The marginal probability of being the
𝜕𝑒𝑖 3𝑞
 13

𝜕Prob(𝐻𝑖𝑔ℎ) 1 𝑑
higher performer in the heterogeneous team is = 2𝑞 − (2𝑞)2 for both the stronger
𝜕𝑒𝑖

and weaker members. This implies that salespeople of different ability endowments expend
identical effort levels, consistent with Proposition 1A. However, the salespeople’s effort
decreases in d. Consequently, contrary to Proposition 1B, total team effort decreases as the
ability composition of the team becomes more heterogeneous. Finally, note that the loss in
effort is caused purely by the lower effort expended into the within-team competition when
salespeople are heterogeneous (i.e., when d > 0). A direct implication of our result is that
when managers implement team contests with prize structures that also motivate within-
team competition, they should minimize the heterogeneity among team members when
sorting the salespeople into teams.

Overall, the analyses in the model extensions show the following: First, the prediction
in Proposition 1A that both the stronger and weaker members of the team expend the same
effort is quite robust. Second, the extensions shed light on the boundary conditions for
Proposition 1B derived from our basic model: As long as the total ability endowments are
balanced across teams and members of the same team receive the same prize, total team
effort will not be affected by the ability composition within the sales team.

2.1.3. Alternative Approach to Modeling Salesperson Heterogeneity

In this section, we examine the effect of team composition on salesperson effort using
an alternative approach to model salesperson heterogeneity. Specifically, we capture ability
differences among salespeople by assuming that they face different costs of expending effort.
Using the same notation as in our basic model, we now define the cost of effort function of
2
𝑏∗𝑒𝑡𝑝
team member Stp to be 𝑐(𝑒𝑡𝑝 ) = . The stronger member in the team has a higher htp and
ℎ𝑡𝑝

hence a lower cost of effort.

As before, we begin by deriving the MPW in the contest for each team member. The
first order conditions are very similar to Equations 3 and 4. Following the same procedure
1
described in Appendix A1, we find that the MPW for each team member is , and the
3𝑞
ℎ𝑡𝑝 ∗𝑏∗(𝑊𝐻 −𝑊𝐿 )
equilibrium effort for each salesperson is . From this expression, we can
6𝑞

observe that when the team is heterogeneous (i.e., ht1 > ht2), the stronger team member
 14

expends higher effort than the weaker one. This finding differs from Proposition 1A derived
from our basic model, which predicts that 𝑒𝑠∗ = 𝑒𝑤
∗
. More importantly however, the
(ℎ𝑡1 +ℎ𝑡2 )∗𝑏∗(𝑊𝐻 −𝑊𝐿 )
expression for total team effort is . Hence, given a total ability endowment
6𝑞

ht1+ht2 in the team, varying the team composition (ht1 − ht2) will not affect total team effort.10
This finding is consistent with Proposition 1B in our basic model.

2.2. Effect of Team Composition on Effort in Contests Based on Minimum and

Maximum Sales

Using the setup in our basic model, we first characterize the equilibrium effort when
teams are competing based on the minimum and maximum individual sales of the team, both
when teams are homogeneous and heterogeneous. After that, we discuss how team
composition affects the contest metric that managers should use to motivate the highest
sales effort.

2.2.1. Effort in Contests Based on Minimum Sales

In the contest where the winner is determined by whichever team has the higher
minimum individual sales, the team output is Yt = Min (yt1, yt2). Hence, the probability of
winning the contest for team t is

Prob(Win) = Prob[Min (yt1, yt2) > Min (y–t1, y–t2)]

= 1 – Prob[yt1 < Min (yt2, y–t1, y–t2)] – Prob[yt2 < Min (yt1, y–t1, y–t2)] (9)

This means that team t wins the contest as long as no salesperson in this team has the lowest
sales across the two teams. In Appendix A1, we characterize the mathematical expression of
Equation 9 and take the derivative of Prob(Win) with respect to effort to compute the MPW
for every team member. The final expressions of the MPW are also reported in Table 1.
1
In the contest between two homogeneous teams (i.e., d = 0), the MPW is simply 3𝑞.

When the team composition is heterogeneous (i.e., d > 0), the MPW for the stronger member

10Note that this result holds as long as ∑ ℎ𝑡𝑝 is identical across teams, so that the two teams need not be symmetric (i.e., h1p
= h2p) in team composition.
 15

(8𝑞−𝑚)(2𝑞−𝑚)2 32𝑞 3 +12𝑞2 𝑚−𝑚3

is and for the weaker member. In order to simplify the
96𝑞 4 96𝑞 4

expressions of the MPW, we let 𝑚 = 𝑒𝑠∗ − 𝑒𝑤

∗
+ 𝑑, where 𝑒𝑠∗ represents the equilibrium effort
level of the stronger members (i.e., 𝑒11
∗ ∗
= 𝑒21 = 𝑒𝑠∗ ), and 𝑒𝑤
∗
represents the equilibrium effort
level of the weaker members (i.e., 𝑒12
∗ ∗
= 𝑒22 ∗
= 𝑒𝑤 ).

Individual Effort Decisions when d > 0. We now examine the relative effort levels of the
stronger and weaker members when the ability composition of the team is heterogeneous.
To do so, we compare the expressions of the MPW for the team members, which are given
above. Note that which expression is larger depends on the value of m. Essentially, 𝑚 = 𝑒𝑠∗ −
∗
𝑒𝑤 + 𝑑 represents the difference in the expected outputs between the stronger and weaker
members at the equilibrium (since the noise term εtp is mean zero). Note that there are two
forces affecting the effort decision of the stronger member. To begin, the stronger member
does not have an incentive to lower his effort to the extent that his expected output becomes
lower than that of the weaker member. Otherwise, he unnecessarily reduces the probability
that his team wins the contest. This implies that m is greater than 0. At the same time, the
stronger member does not have the incentive to exert too high of an effort level that would
cause his output to become definitely higher than that of the weaker member. This is because
winning the contest depends on the lower contribution within the team, which is more likely
to be that of the weaker member. Given that the noise term εtp is uniformly distributed over
the interval [–q, q], the upper bound of m at the equilibrium is 2q.

Given that m is within the interval (0, 2q), it is easy to see that the MPW for the
(8𝑞−𝑚)(2𝑞−𝑚)2 1
stronger member, , is lower than . Similarly, the MPW for the weaker
96𝑞 4 3𝑞

32𝑞 3 +12𝑞 2 𝑚−𝑚3 1

member, , is larger than 3𝑞. This yields the following proposition:
96𝑞 4

Proposition 2A. When winning the contest depends on the minimum sales within the team,
the stronger member exerts lower effort than the weaker member.
The logic behind Proposition 2A can be explained as follows. When the contest winner
is determined by the lower individual sales within the team, the output of the stronger
member is less likely to be used in determining the contest winner, compared to that of the
weaker member. Because the effort of the weaker member is likely to be more influential on
the contest outcome, he exerts higher effort than the stronger member.
 16

Total Team Effort. Next, we examine how heterogeneity in team composition affects the
overall team effort by comparing the sum of the MPW of the team members when d = 0
2 2
versus d > 0. In the former, the sum of the MPW is simply 3𝑞, while in the latter, it is 3𝑞 −
𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
. Since m lies within the interval (0, 2q) at the equilibrium, the sum of the MPW
48𝑞 2

is lower when d > 0. As a result, heterogeneity in team composition leads to lower total effort
under the minimum metric. Formally, for a contest between two symmetric teams, we have

Proposition 2B. When winning the contest depends on the minimum sales within the team,
total team effort is lower when the team composition is heterogeneous.
The intuition for Proposition 2B is as follows: While the stronger (weaker) member
exerts lower (higher) effort than when both team members are homogeneous, the decrease
in the stronger member’s effort is greater than the increase in the weaker member’s effort,
because effort costs are convex. Consequently, total team effort is lower.
2 𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
Moreover, we note that 3𝑞 − is decreasing in m over the interval (0, 2q).
48𝑞 2

To examine the relationship between m and d, we first solve for the value of m using the first-
order condition for effort in Equation 4 and the MPWs for the stronger and weaker members
16𝑏𝑞 3 +4𝑞𝑤−√−64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 −4𝑞𝑤)2
in the team. This yields the expression . Taking the
2𝑤

derivative of m with respect to d, we find that m is increasing in d.

Lemma 1A. When winning the contest depends on the minimum sales within the team, total
team effort decreases as the degree of heterogeneity in team composition increases.
Proof: See Appendix A2.

2.2.2. Effort in Contests Based on Maximum Sales

When the contest winner is determined by whichever team has the higher maximum
individual sales within the team, we let Yt = Max (yt1, yt2). Consequently, the probability of
winning the contest for team t is

Prob(Win) = Prob[Max (yt1, yt2) > Max (y–t1, y–t2)]

= Prob[yt1 > Max (yt2, y–t1, y–t2)] + Prob[yt2 > Max (yt1, y–t1, y–t2)], (10)

which means that team t wins the contest as long as one of its salespeople has the highest
individual sales across the two teams. Next, we derive the MPW for each team member in
 17

this contest using a similar approach to the one used for the contest based on the minimum
sales in the team. The details of the procedure can also be found in Appendix A1 and the
results are shown in Table 1.

First, when the team composition is homogeneous (d = 0), the MPW for each team
1
member is again . Second, when members of a team have heterogeneous ability
3𝑞

32𝑞 3 +12𝑞 2 𝑚−𝑚3

endowments (d > 0), the MPW for the stronger and weaker members are 96𝑞 4

(8𝑞−𝑚)(2𝑞−𝑚)2
and , respectively. Applying the similar logic used in Section 2.4.1, we can show
96𝑞 4

that m again lies within the interval (0, 2q).11

Individual Effort Decisions when d > 0. We now proceed to examine the effort levels of the
stronger and weaker members in the heterogeneous team. Given that m lies within the
32𝑞 3 +12𝑞 2 𝑚−𝑚3
interval (0, 2q), we can see that the MPW for the stronger member, , is larger
96𝑞 4

1 (8𝑞−𝑚)(2𝑞−𝑚)2 1
than 3𝑞. Similarly, the MPW for the weaker member, , is less than 3𝑞.
96𝑞 4

Proposition 3A. When winning the contest depends on the maximum sales within the team,
the stronger member exerts higher effort than the weaker member.
The intuition for Proposition 3A is as follows. When the contest winner is determined
by the higher individual sales within the team, the stronger member’s output is likely to be
more influential in determining the contest winner, compared to that of the weaker member.
The weaker member expends lower effort because he has very little chance of influencing
the team’s contest outcome.

Total Team Effort. To examine how heterogeneity in team composition affects team effort,
we again compare the sum of the MPW of the team members when d = 0 versus d > 0. When
2
team members are homogeneous in ability endowments, the sum of the MPW is 3𝑞. When the
2 𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
team composition is heterogeneous, this expression is 3𝑞 − , which is lower
48𝑞 2

11When m reaches the value of 2q so that the output of the stronger member is definitely higher than that of the weaker
member, the weaker member will choose zero effort. In this scenario, the two stronger members across the different teams
(𝑊 −𝑊 )
play as if they are competing in a two-person individual contest. This occurs when d reaches 2𝑞 − 𝐻 𝐿 . In this paper, we
4𝑏𝑞
(𝑊𝐻 −𝑊𝐿 )
chose the values of parameters where 𝑑 < 2𝑞 − = 𝑞 so that the weaker members will not choose zero effort.
4𝑏𝑞
 18

2
than . Hence, for a contest between two symmetric teams, we have the following
3𝑞

proposition.

Proposition 3B. When winning the contest depends on the maximum sales within the team,
total team effort is lower when the team composition is heterogeneous.
2 𝑚[(3𝑞−𝑚)2 +3𝑞 2 ]
Next, notice that when d > 0, the expression 3𝑞 − is also decreasing in
48𝑞 2

m. When we solve for the value of m, we obtain the expression

−16𝑏𝑞 3 +4𝑞𝑤+√64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 +4𝑞𝑤)2
𝑚= . We can again see that m is increasing in d.
2𝑤

Lemma 1B: When winning the contest depends on the maximum sales within the team, total
team effort decreases as the degree of heterogeneity in team composition increases.
Proof: See Appendix A2.

2.3. Effect of Team Composition on the Design of Sales Contests

The preceding analysis examines how individual salesperson effort and total team
effort will change in a sales contest between two symmetric teams when team members
become heterogeneous, under different contest metrics. We now investigate how team
composition affects the type of sales contest (i.e., based on the average sales, minimum or
maximum individual sales) that managers should use to motivate the highest effort. First,
our analysis shows that when the team composition is homogeneous (d = 0), the sum of the
2
team members’ MPW is 3𝑞 for the contests based on the average, minimum, and maximum

metrics. This means that these three types of contests are equivalent in terms of team effort.

Proposition 4A. When the team composition is homogeneous, the average, minimum, and
maximum contest metrics elicit the same level of team effort.
2
When the team composition is heterogeneous (d > 0), the sum of the MPW is still
3𝑞

under the average metric, so heterogeneity does not reduce team effort in this contest (as
stated in Proposition 1B). In contrast (and as stated in Propositions 2B and 3B), under the
minimum and maximum metrics, team effort in the heterogeneous team is lower compared
to the homogeneous team.
 19

Next, note that even though the expressions for the sum of the MPW appear identical
2 𝑚[(3𝑞−𝑚)2 +3𝑞 2 ]
under the minimum and maximum metrics (i.e., 3𝑞 − ), team effort is actually
48𝑞 2

higher under the minimum metric, given the same level of within-team heterogeneity. To see
2 𝑚[(3𝑞−𝑚)2 +3𝑞 2 ]
this, recall that from Lemmas 1A and 1B, the sum of the MPW − is
3𝑞 48𝑞 2

decreasing in m. Next, we know from Proposition 2A that under the minimum metric, the
equilibrium effort of the stronger member (𝑒𝑠∗ ) is lower than that of the weaker member
(𝑒𝑤
∗
), so that 𝑚 = 𝑒𝑠∗ − 𝑒𝑤
∗
+ 𝑑 is less than d. Under the maximum metric however, we know
from Proposition 3A that 𝑒𝑠∗ is higher than 𝑒𝑤
∗
, so that m is greater than d. Given these results,
the value of m is smaller under the minimum metric. This implies that the sum of the MPW,
and hence team effort, is higher under the minimum metric than under the maximum metric.

Proposition 4B. When the team composition is heterogeneous, the average metric elicits the
highest team effort in the contest, followed by the minimum metric, and then the maximum
metric.
Together, Propositions 4A and 4B show that the ability composition in a sales team
can affect the optimal design of a sales contest: When team composition is homogeneous,
contests based on the average, minimum and maximum metric are equally effective.
However, when the ability mix in the team is heterogeneous, managers should let teams
compete based on average sales. It is critical to note that these results are derived from our
basic model, which captures salesperson heterogeneity via an additive constant ktp and
assumes that the competing teams are symmetric. When these assumptions do not hold, a
team contest based on the average metric may not necessarily be optimal. In the next
paragraphs, we discuss two scenarios in which the minimum and maximum metrics could
yield the highest team effort, respectively.

Case when the Minimum Metric is Optimal. In Section 2.1.2, we examine salesperson effort
in the ASY1 scenario under the average metric and find that the sum of the marginal
2
probability of winning (which determines the team effort) in every team is 3𝑞. Recall that in

this scenario, the two competing teams have different team compositions but identical team
ability endowments (i.e., ∑ 𝑘1𝑝 = ∑ 𝑘2𝑝 ). Specifically, in team 1, one salesperson has a high
ability endowment, while the other salesperson has an endowment that is lower by d. In
 20

team 2, both salespeople have the same ability endowment, which equals the average ability
endowment of team 1 (i.e., k11 = k12 + d and k21 = k22 = k12 + d/2, where d > 0).

We now derive the MPW in this contest under the minimum and maximum metrics.
Under the minimum metric, we find that the sum of the MPW for each of the two teams is
2 𝑚2 𝑚3
+ 8𝑞3 − 96𝑞4 (i.e., this expression is identical for both teams 1 and 2). Under the maximum
3𝑞

2 𝑚3
metric, the sum of the MPW for each of the two teams is 3𝑞 − 96𝑞4. Note that 𝑚 = 𝑒11
∗ ∗
− 𝑒12 +

𝑑, where 𝑒11
∗
and 𝑒12
∗
represent the equilibrium effort of the stronger and weaker members
in team 1, respectively. Furthermore, under both the minimum and maximum metrics, the
∗ +𝑒 ∗ )
( 𝑒11
equilibrium effort of the two salespeople in team 2 is 𝑒21
∗ ∗
= 𝑒22 = 12
2
, i.e., each

salesperson expends an effort level that is between the effort of the stronger and weaker
members of the rival team. As previously shown, m must lie within the interval (0, 2q). Hence,
in this ASY1 scenario, the total team effort under the minimum (maximum) metric is higher
(lower) compared to the sales contest under the average metric.

We now explain why the total team effort is higher under the minimum metric when
compared to the average metric. To begin, consider effort in team 2 where both salespeople
have the same ability endowment (which equals the average ability endowment of team 1).
Because these two salespeople have identical abilities, they are equally responsible for the
contest outcome so neither salesperson has an incentive to reduce his effort relative to the
other. In fact, we find that the salespeople in team 2 increase their effort compared to the
contest under the average metric, because they know that the weaker member in team 1
(who now becomes more responsible for his team’s outcome under the minimum metric)
1 12𝑚2 𝑞−𝑚3
will increase his effort. The MPW for each salesperson in team 2 is 3𝑞 + under the
192𝑞 4
1
minimum metric, which is higher compared to that under the average metric (3𝑞).

Next, we examine the effort decisions in team 1. Compared to the contest with the
average metric, the stronger member will expend lower effort under the minimum metric,
since he is now less responsible for the contest outcome. However, this decrease in effort is
mitigated by the effort increase of the salespeople in the rival team 2. The weaker member
in team 1 now puts in higher effort than under the average metric. This is because under the
 21

minimum metric, he becomes more responsible for the contest outcome. The increase in the
weaker member’s effort (relative to the contest with the average metric) is larger than the
drop in the stronger member’s effort, so that the combined effort in team 1 is also higher
than under the average metric. Specifically, the MPW for the weaker member under the
1 144𝑚𝑞 2 +𝑚3 144𝑚𝑞 2 +𝑚3
minimum metric (3𝑞 + ) is higher compared to the average metric by ,
384𝑞 4 384𝑞 4

1 144𝑚𝑞 2 −48𝑚2 𝑞+5𝑚3

while the MPW for the stronger member ( − ) is lower
3𝑞 384𝑞 4

144𝑚𝑞 2 −48𝑚2 𝑞+5𝑚3

by . The difference in the sum of the MPW for both team members across
384𝑞 4

𝑚2 𝑚3
the two types of contests is 8𝑞3 − 96𝑞4 > 0.

Case when the Maximum Metric is Optimal. In Section 2.1.3, we modeled heterogeneity in
2
𝑏∗𝑒𝑡𝑝
salesperson ability through differences in salespeople’s cost of effort function 𝑐(𝑒𝑡𝑝 ) = ℎ𝑡𝑝

(where ht1 ≥ ht2 within each team), and showed that team effort under the average metric
would be invariant to heterogeneity in team composition. We now examine salesperson
effort given this way of modeling salesperson heterogeneity, for the contests with the
minimum and maximum metrics, and compare them with the effort under the average
metric. Because this comparison is extremely complex analytically, we employ numerical
simulations in our analysis.
[Insert Table 2 about here]
Table 2 displays the effort for the stronger member, weaker member, and the team,
for the three types of contests. The parameter values we use in Panel I are WH = $1.4, WL =
$.4, q = 50, b = .0001, which are the same as those we use in our experimental tests (to be
described in Section 3). Keeping ht1 + ht2 = 2, we simulate salesperson effort for the following
three cases: 1) when the team composition is homogeneous, i.e., ht1 = ht2 = 1; 2) when within-
team heterogeneity is low (where ht1 = 1.2 and ht2 = .8); and 3) when within-team
heterogeneity is high (where ht1 = 1.4 and ht2 = .6).

The results in Table 2 show that when the degree of heterogeneity in the team (i.e.,
ht1 – ht2) is not too high, the average metric elicits the highest team effort. However, when the
degree of heterogeneity is sufficiently large, the maximum metric yields the highest team
effort. We explain this finding in greater detail: First, note that the stronger (weaker)
 22

member always expends higher (lower) effort under the maximum metric than under the
average metric, since the stronger (weaker) member under the maximum metric is more
(less) responsible for the team’s contest outcome. As the degree of heterogeneity within the
team increases (i.e., ht1 – ht2 becomes larger), the stronger member will become even more
responsible for his team’s contest outcome under the maximum metric. On the other hand,
under the average metric, the change in the cost function of effort does not change each team
member’s responsibility for their team’s contest outcome (recall that from Section 2.1.3, the
1
MPW of each team member under the average metric is always 3𝑞). When the increase in the

stronger member’s effort under the maximum metric is larger than the drop in the weaker
member’s effort, team effort will be higher compared to the contest with the average metric.

Specifically, as shown in Table 2, when the degree of heterogeneity is low (ht1 – ht2 =
1.2 – .8 = .4), the stronger member’s effort under the maximum metric is higher by 12.8
points (52.8 – 40.0) than under the average metric, while the weaker member’s effort is
lower by 19.7 points (6.9 – 26.6), so the team effort under the maximum metric is lower (59.7
< 66.6). However, when the within-team heterogeneity becomes larger so that the stronger
member’s cost of effort decreases (ht1 – ht2 = 1.4 – .6 = .8), he assumes even greater
responsibility for his team’s outcome under the maximum metric. As such, he increases his
effort much more compared to the contest under the average metric (66.0 – 46.60 = 19.4
points). This increase outweighs the weaker member’s relative effort decrease (20.0 – 2.2 =
17.8 points), so the team effort under the maximum metric is higher when compared to the
average metric (68.2 > 66.6). Panel II of Table 2 shows that the results are robust under
another set of model parameters (when WH = $2.5, WL = $1.5, q = 50, b = .0002, and ht1 + ht2
= 3).

3. Experimental Tests of Theoretical Predictions

The preceding theoretical analysis yields several sharp predictions about how team
composition affects effort of salespeople of different abilities across contests with different
metrics. For the theory to be useful to managers however, it must be empirically valid. In this
section, we present two experimental tests that serve as a first step towards checking
whether the theoretical results hold when decision-makers make effort choices strategically
 23

in team contests. In Experiment 1, we focus on the predictions of the basic model, where
competing teams are symmetric and salesperson heterogeneity is modeled via the additive
constant ktp. In Experiment 2, we turn to the case where differences in salesperson ability is
captured through the costs of expending effort.

To begin, we summarize the theoretical predictions in the basic model into three
hypotheses.

Hypothesis 1 (Team effort under each contest metric). The ability composition of team
members does not affect team effort under the average metric. However, under the minimum
and maximum metrics, heterogeneity in team composition reduces total team effort.
Hypothesis 2 (Comparison of team effort across contest metrics). When the ability
composition of team members is homogenous, all three metrics elicit the same level of team
effort. However, when the ability composition of team members is heterogeneous, team effort
is highest under the average metric.
Hypothesis 3 (Effort of heterogeneous team members). In a heterogeneous team, both the
stronger and weaker members exert identical effort levels under the average metric. However,
under the minimum (maximum) metric, the stronger member expends lower (higher) effort
than the weaker member.
3.1. Experiment 1

We employ a 2×3 between-subjects design that varies the ability composition

(homogeneous versus heterogeneous teams) and how the winner is determined in the team-
based contest (average, minimum, and maximum metrics).

Participants in the experiment were undergraduate business students at a large

public research university in the United States. They received course credit for showing up
to the experiment on time and earned cash based on their performance. Each of the six
treatments consisted of either 2 or 3 experimental sessions, with each session having 8, 12,
or 16 participants (depending on the number of students who had signed up for that
session). There were a total of 15 decision rounds in each session and we implemented the
experiment using z-Tree software (Fischbacher 2007). Each session lasted about 60 minutes.
Before the start of the 15 decision rounds, we also conducted 3 practice rounds (that carried
no monetary consequences) to familiarize participants with the experimental procedure. At
the end of each experimental session, participants were paid privately in cash and then
 24

directed to leave the lab. Each participant earned $9 on average and earnings ranged from
$5 to $15.

To generate the model’s point predictions of effort, we chose the parameter values of
WH = $1.4, WL = $.4, q = 50, b = .0001. In the treatments where the ability composition of the
team members was heterogeneous, we chose d = 40. This set of parameters was selected to
ensure that the following holds: 1) There is sufficient spread in the effort predictions across
the treatments and also between the stronger and weaker members; 2) The effort
predictions of the theoretical model are not focal numbers; and 3) The expected payoffs of
the participants remain positive even if they lose in the contest, so that effort decisions will
not be affected by negative payoff aversion. Column 3 of Table 3 displays the effort
predictions for each of the six treatments.

[Insert Table 3 about here]

3.1.1. Experimental Procedure

To begin, we label each of the six treatments in the following manner. First, we label
the treatment based on how the contest winner is determined. Specifically, we denote the
contest based on the average metric, minimum metric, and maximum metric by “Avg”, “Min”
and “Max”, respectively. Next, when the teams are homogeneous, we append the label “d0”.
When the team members are heterogeneous with d = 40, we label it “d40”. For example, in
the contest based on the maximum individual output in the team and team composition is
heterogeneous, the label for that treatment is “Max-d40”.

To better illustrate the experimental procedure, we first describe the Avg-d40

treatment in detail, and then use it as a benchmark to explain the differences in the other five
treatments.

Avg-d40 Treatment. In every experimental session, once participants entered the lab, they
were seated apart and handed the experimental instructions. Participants were told that half
of them would be randomly and anonymously selected to be Type 1 players (i.e., the stronger
members) and the other half would be Type 2 players (i.e., the weaker members). Once their
roles were assigned, participants kept the same role throughout the session. In every
decision round, each Type 1 player would be randomly and anonymously paired with one
Type 2 player to form a team. They would then compete with another (randomly and
 25

anonymously matched) two-person team (which was also made up of one Type 1 player and
one Type 2 player) for the winning prize of 2WH = $2.8. When the round ended, they would
be re-matched in the same manner with a new teammate and compete against a new team
until the 15 decision rounds were completed.

The decision task for participants in each decision round was to select a Decision
Number (etp) between 0 and 100. They were informed that every Decision Number carried a
corresponding Decision Cost (.0001𝑒𝑡𝑝
2
), which would be subtracted from their earnings. A
two-column “Decision Cost Table” was provided to all subjects so that they could easily
determine the decision cost for each decision number. Participants then entered their
Decision Numbers into the computer program and, upon doing so, the computer generated
a unique Random Number (εtp) for each participant. This Random Number ranged from −50
to 50 (q), and each Random Number in this range had an equal chance of being drawn. The
computer then calculated the Final Number (ytp) for each participant: For the Type 1 players,
the Final Number equals the sum of the Decision Number, the Random Number, and 40 (kt1).
For the Type 2 players, the Final Number is just the sum of the Decision Number, the Random
Number, and 0 (kt2). In this way, we have d = kt1 – kt2 = 40. Other than this, there was no
difference between the Type 1 and Type 2 players.

Participants were told that their earnings would also depend on their team’s
performance. Specifically, their Team Final Number (Yt), which was the average of the
participant’s own Final Number and their teammate’s Final Number, would be compared to
the Team Final Number of the competing team. Depending on whether their Team Final
Number was higher or lower than that of the competing team, they would each receive $1.4
(WH) or $.4 (WL). In either case, win or lose, participants were told that their own Decision
Cost would be subtracted from the amount awarded.

In the experiment, the range of Decision Numbers and the Decision Costs, the
distribution of Random Numbers, and how the Final Numbers and payoffs would be
determined were common knowledge to all participants. Participants were told that they
would also know the Final Number of their teammate and their Team Final Number (Yt) after
every decision round. To capture the fact that output is often more easily observed than
 26

effort, the actual Decision Number chosen, the Random Number drawn, and the monetary
earnings in each round were private knowledge to each participant.

Avg-d0 Treatment. This treatment is identical to the Avg-d40 treatment, except for the
following: In the Avg-d0 treatment, there are no Type 1 or Type 2 players so that team
members are homogeneous in ability endowments. Both players in the same team have the
same level of kt1 = kt2 = 20, so that d = 0. Note that regardless of whether the teams were
homogeneous or heterogeneous, we controlled for the total ability endowment in a team by
setting kt1 + kt2 = 40 across all treatments.

Min-d0 and Min-d40 Treatments. These treatments are identical to their corresponding
treatments (i.e., with the same level of d) when the contest winner is based on the average
team output. The only exception is that the Team Final Number is defined to be the lower of
the two Final Numbers in the same team.

Max-d0 and Max-d40 Treatments. These treatments are again identical to their
corresponding treatments (i.e., with the same level of d) under the average metric. The only
exception is that the Team Final Number is defined to be the higher of the two Final Numbers
in the same team.

3.1.2. Experimental Results

There were a total of 160 participants across the six treatments. Table 3 displays the
summary results of effort decisions in each treatment. Comparing the mean effort decisions
(in Column 4 of Table 3) to the theoretical predictions (in Column 3), we find that except for
the stronger members (Type 1 players) in the Min-d40 and Max-d40 treatments, subjects
chose significantly higher effort levels than the theory predictions. Our main focus, however,
is to compare team effort across different levels of ability composition under each metric,
the team effort across different metrics, and the effort levels of the stronger and weaker
members within a team. We now proceed to report the formal statistical tests that examine
how heterogeneity in team composition affects effort decisions across the three types of
contests. Because each participant made multiple effort decisions, we cluster the standard
errors at the subject-level in all the statistical tests to account for potential within-subject
correlation.
 27

Result 1: Consistent with H1, under the average metric, team effort is invariant to
heterogeneity in team composition; moreover, under the minimum and maximum metrics,
team effort is higher when teams are homogeneous compared to when they are heterogeneous.
The results of the OLS regression of effort on team composition are shown in Table 4.
First, average team effort in the Avg-d0 treatment (M = 51.6) and the Avg-d40 treatment (M =
51.5) are not significantly different (t = .03, p = .973). Figure 1A, which plots the average
team effort in every decision round across the Avg-d0 and Avg-d40 treatments, shows that
these findings are relatively stable over the decision rounds.

When we examine effort decisions using data from all 15 rounds in the contest under
the minimum metric, we find that average team effort in the Min-d0 treatment (M = 42.6) is
directionally higher than that in the Min-d40 treatment (M = 36.4, t = 1.33, p = .188) as shown
in the second panel of Table 4. As participants become more experienced with the decision
task (i.e., from Round 7 onwards), average team effort in the Min-d0 treatment (M = 43.9)
becomes significantly higher relative to that in the Min-d40 treatment (M = 35.3, t = 2.03, p =
.048), which is consistent with the theory prediction. These trends can also be seen from
Figure 1B.

In the contest under the maximum metric, average team effort across all rounds in
the Max-d0 treatment (M = 45.0) is higher compared to the Max-d40 treatment (M = 34.5, t =
2.16, p = .035), consistent with the theory prediction. These results can also be observed
from Figure 1C, which plots the average team effort in each round for the Max-d0 and Max-
d40 treatments.

Overall, the experimental results are consistent with the theory predictions
summarized in H1.

[Insert Table 4 about here]

[Insert Figures 1A-1C about here]

Result 2: Consistent with H2, when the team composition is homogeneous, the contests based
on the average, minimum and maximum metrics elicit the same level of team effort; however,
when the team composition is heterogeneous, the average metric yields the highest team effort.
Figures 2A and 2B plot the average effort of each round across the three contest
metrics when team composition is homogeneous and heterogeneous, respectively. The
results of the tests that compare team effort across contest metrics are summarized in Table
 28

5. When team composition is homogeneous, there is no difference in team effort between the
average metric and the maximum metric (51.6 vs. 45.0, t = 1.58, p = .120) or between the
maximum metric and the minimum metric (45.0 vs. 42.6, t = .55, p = .581). Although total
team effort in the average metric is higher compared to the minimum metric (51.6 vs. 42.6,
t = 2.04, p = .046) using the data for all 15 decisions, we find that the difference narrows as
participants become more experienced. In fact, from Rounds 10 to 15, effort decisions across
these two contests are no longer significantly different (52.7 vs. 45.1, t = 1.64, p = .107).

When the team composition is heterogeneous, team effort under the average metric
(M = 51.5) is significantly higher than under the minimum metric (M = 36.4, t = 3.98, p =
.000) and the maximum metric (M = 34.5, t = 3.93, p = .000), which is consistent with H2.
Next, our model predicts that team effort under the minimum metric will be higher than
under the maximum metric. However, the results show that while team effort is directionally
higher in the former, the difference is not statistically significant (t = .37, p = .709). One
possible reason is that our experimental parameters yield a point prediction of almost zero
effort by the weaker members under the maximum metric – in our experiments, even though
participants in the role of the weaker member (Type 2 player) might know that they should
contribute very low effort (which they did, choosing an average of 21.7 out of a possible 100),
they may feel psychologically averse to contributing absolutely no effort to their team. 12

[Insert Figures 2A and 2B about here]

[Insert Table 5 about here]
Result 3: Consistent with H3, in a heterogeneous team, the stronger and weaker members exert
identical effort under the average metric. Furthermore, as predicted by theory, the stronger
member expends lower (higher) effort than the weaker member under the minimum
(maximum) metric.
The average effort decisions of the stronger and weaker members in each of the 15
decision rounds are shown in Figures 3A−3C. When winning the contest depends on the
average team output, we find no difference in the effort levels of the stronger versus the
weaker members in the Avg-d40 treatment (49.0 vs. 54.0: t = –1.28, p = .211). Under the

12 This pattern of results was also found by Amaldoss and Staelin (2010). In a contest between two 4-member same-function
alliances, theory predicts that contributions will be close to zero, but the experimental participants made contributions that
were significantly higher.
 29

minimum metric, the effort of the stronger member is significantly lower than that of the
weaker member in the Min-d40 treatment (26.0 vs. 46.8: t = –3.77, p = .001). Finally, under
the maximum metric, the effort of the stronger member is significantly higher than that of
the weaker member in the Max-d40 treatment (47.3 vs. 21.7: t = 4.06, p = .000). These results
provide strong support for H3.

[Insert Figures 3A−3C about here]

3.2. Experiment 2

In Section 2.1.3, we showed that when heterogeneity in salesperson ability is modeled

through different costs of expending effort, changing the team composition does not affect
team effort under the average metric. Moreover, this result holds even when the stronger
member is now predicted to exert higher effort than the weaker member (instead of both
expending identical effort under the basic model). We test the empirical validity of this
prediction by conducting another treatment, which we label Avgcost. The experimental design
is identical to the Avg-d0 treatment in Experiment 1, except for the following: In the Avgcost
treatment, the stronger member in the team has a lower cost of effort than his teammate.
Specifically, we have ht1 = 1.5 and ht2 = .5. Given these parameters, the theory predictions of
effort for the stronger and weaker members are 50.0 and 16.6, respectively. Notice also that
in this treatment, instead of simply setting kt1 = kt2 = 0, we allowed the team members to have
the ability endowments of kt1 = kt2 = 20. In this way, the team members remain homogeneous
in ability endowment ktp, but are heterogeneous with respect to cost of effort htp. This design
feature allows us to compare effort in the Avgcost treatment directly with the Avg-d0
treatment in Experiment 1 (where kt1 = kt2 = 20, ht1 = ht2 = 1), as the team members in the
latter treatment have homogeneous effort costs. In both treatments, average team effort is
predicted to be 33.3.

Results. There were 28 undergraduate participants in the Avgcost treatment. The mean effort
level chosen by the stronger member was 64.4, while the mean effort of the weaker member
was 42.6. As in Experiment 1, these average effort decisions are higher than the point
predictions of our model. More critically however, the difference in the average effort
between the stronger and weaker members is statistically significant (t = 7.21, p = .000),
which is consistent with our theory. Next, we turn our attention to the average team effort.
 30

Figure 4, which plots the average team effort across the 15 rounds for both the Avg-d0 and
Avgcost treatments, shows that effort decisions are relatively stable across rounds. Using the
data for all 15 rounds, we find no significant difference in average team effort between the
Avgcost treatment (M = 53.5) and the Avg-d0 treatment (M = 51.6, t = .48, p = .634). This
finding, together with Result 1 in Experiment 1, provides strong evidence that team effort
does not vary with changes in team composition under the average metric.

[Insert Figure 4 about here]

4. Discussion & Conclusion

This paper examines how heterogeneity in the ability composition within a sales team
affects individual and total team effort across three contest metrics that managers can
choose from when designing a team contest. A major prediction of our main model is that
when winning the contest is determined by the average team output, team effort is invariant
to the ability composition within the team. This result holds as long as the total ability
endowments are balanced across the competing teams, and is robust to different ways of
modeling salesperson ability. However, when the contest winner is determined by the
minimum or maximum contribution within the team, heterogeneity in team composition
decreases total effort. Our model also shows that when team members are homogeneous, all
three contest metrics yield equal team effort. However, when team members have different
ability endowments and competing teams are symmetric, the average metric elicits the
highest team effort. When the competing teams are asymmetric however, we find that the
minimum metric can be optimal. We also find that the maximum metric works best when
team members have very different costs of expending effort. To validate our model
empirically, we design two incentive-aligned experiments to test the theoretical predictions.
The experimental results exhibit broad support for the theory.

A number of managerial implications can be drawn from our analysis. First, we

showed that the effort of the stronger and weaker salespeople may vary based on the type
of salesperson heterogeneity that we assume (i.e., through different ability endowments or
effort costs). Hence, to select the appropriate set of theoretical results to guide practice, it is
important for managers to understand what drives the differences in salesperson
performance – whether it is differences in sales territories and customer bases, or selling
 31

abilities.13 Second, we found that when salespeople are relatively homogeneous, all three
contest metrics yield identical effort. If managers run several contests during the year or plan
separate contests for different product lines during the same period, they need not use only
one metric for all the contests. Changing the metrics periodically can make the incentive
structure appear “fresh” to salespeople, and managers need not worry about drops in effort.

Third, when salespeople are heterogeneous, managers need to pay close attention to
how they sort salespeople into teams and which type of contest metric to employ.
Specifically, we showed that the degree of symmetry between competing teams can critically
affect effort. Recall from Section 2.1.2 (the ASY2 scenario) that managers should sort
salespeople into teams that are as balanced in total ability endowments as possible.
Moreover, we showed that when competing teams have identical team composition, the
contest metric based on average sales yields the highest total effort, and differences in
within-team composition do not affect effort. However, when the competing teams do not
have the same team composition (such as in the ASY1 scenario), the minimum metric would
be optimal. Finally, there may be situations when maximizing total team effort may not be
the manager’s foremost objective. For example, if the primary goal is to motivate the weaker
members in a sales team to expend higher effort, one should use the minimum metric. If the
focus is to minimize within-team variance in effort, they should employ the average metric.

We conclude by discussing several limitations of this paper, which also serve to

motivate further research on this topic. To begin, we must emphasize that this paper
represents only an early step towards understanding how to design optimal team-based
sales contests. We have not fully explored how alternative ways of modeling heterogeneity
can lead to different results under the minimum and maximum metrics. In particular, two
findings from the numerical simulations in Section 2.3 (where we modeled salesperson
heterogeneity through differences in effort costs) deserve further investigation. First, we
found that the stronger member always exerts higher effort than the weaker member, across
all three contest metrics. Second, the simulations suggest a non-monotonic relationship
between team composition and team effort under the maximum metric – as the salespeople’s

13It is also important for managers to understand whether differences in sales are a result of different abilities or customer
bases, or if they are driven by factors outside the salespeople’s control.
 32

cost of effort increasingly differs, total effort first drops, and then rises. These results suggest
that the relationship between team composition and the optimal contest metric may be more
nuanced than the conclusions derived from our basic model.

From an empirical-testing perspective, there are two interesting avenues that

researchers can further explore. First, in Section 2.1.2, we examined how effort varies with
team composition when members within a team receive unequal prizes. To the best of our
knowledge, there has been no empirical study of how team members trade-off such within-
team competition with the competition against rival teams, or how within-team competition
may affect social ties in a sales team. Second, the experimental results show that team
members exert effort levels that are higher than the rational prediction, and that the degree
of overexertion appears to be higher for the weaker members. This could be because the
weaker member wished to avoid feeling responsible if the team loses in the contest.
Understanding the psychological factors that affect effort choices of salespeople when they
compete in teams can help managers design more effective team contests, and also provide
guidance for when one should use team-based versus individual-based contests.

In this paper, we did not model differences across salespeople in terms of their
skillsets (e.g., prospecting, maintaining customer relationships, providing expertise for a
certain product line), nor interdependencies among team members. In a sales team, each
salesperson may have a different skillset, and revenues may depend on the combined effort
of all team members. In this case, one can model the team’s output using a multiplicative
function such as 𝑌𝑡 = ∏ 𝑒𝑡𝑝 +𝜂𝑡 , where etp represents effort of each salesperson and ηt

represents the team-level demand shock. Moreover, there could be task complementarities
between salespeople in the same team. As mentioned earlier in the paper, if that were the
case, team performance may improve if the team members are more heterogeneous rather
than homogeneous (Chan et al. 2014a, 2014b).

We also studied contests where there are only two competing teams. If there are more
than two teams, the theoretical analysis would become significantly more complex,
particularly for the contests where the winner is determined by the minimum or maximum
individual contribution. Nevertheless, we do not anticipate significant reversals of the theory
predictions if we were to extend our model to allow for more competing teams. Finally, we
 33

examined only the case where each team has two members. When the team size is greater
than two, additional factors such as 1) how many different ability levels there are in the team;
and 2) the proportion of each ability type in the team, would have to be considered.
Furthermore, in addition to the issue of team composition, the question of optimal team size
would arise. We leave these questions to future research.
 34

Table 1 Marginal Probability of Winning (MPW) across Different Types of Contests

Marginal Probability of Winning Metric by which the Contest Winner is Determined

Team Composition Average Minimum Maximum

1 1 1
Homogeneous (d = 0)
3𝑞 3𝑞 3𝑞

Stronger 1 (8𝑞 − 𝑚)(2𝑞 − 𝑚)2 32𝑞 3 + 12𝑞 2 (𝑚) − (𝑚)3

member 3𝑞 96𝑞 4 96𝑞 4
Heterogeneous (d > 0)
Weaker 1 32𝑞 3 + 12𝑞 2 (𝑚) − (𝑚)3 (8𝑞 − 𝑚)(2𝑞 − 𝑚)2
member 3𝑞 96𝑞 4 96𝑞 4

Note: 𝑚 = 𝑒𝑠∗ − 𝑒𝑤∗ + 𝑑, where 𝑒𝑠∗ and 𝑒𝑤∗ represent the equilibrium effort of the stronger and weaker members, respectively.
 35

Table 2 Numerical Results for Effort Levels across Contest Metrics (Differences in Salesperson Effort Costs)

Panel I (WH = $1.4, WL = $.4, q = 50, b = .0001, and ht1 + ht2 = 2)

Low Heterogeneity High Heterogeneity

Contest Metric (ht1 = 1.2, ht2 = .8, ht1 – ht2 = .4) (ht1 = 1.4, ht2 = .6, ht1 – ht2 = .8)

Stronger Weaker Total Stronger Weaker Total

Average 40.0 26.6 66.6 46.6 20.0 66.6

Minimum 34.4 27.9 62.3 34.5 21.9 56.4

Maximum 52.8 6.9 59.7 66.0 2.2 68.2

Panel II (WH = $2.5, WL = $1.5, q = 50, b = .0002, and ht1 + ht2 = 3)

Low Heterogeneity High Heterogeneity

Contest Metric (ht1 = 1.8, ht2 = 1.2, ht1 – ht2 = .6) (ht1 = 2.5, ht2 = .5, ht1 – ht2 = 2)

Stronger Weaker Total Stronger Weaker Total

Average 30.0 20.0 50.0 41.7 8.3 50.0

Minimum 26.4 20.8 47.2 27.0 9.4 36.4

Maximum 35.5 10.6 46.1 57.3 1.4 58.7

 36

Table 3 Effort Predictions and Outcomes of Experiment 1

I. Average Metric
1 2 3 4 5
Level of d Type of Theory Mean No. of
Team Member Prediction Effort Subjects
d=0 33.3 51.6 (13.3)* 20
S# 33.3 49.0 (9.6) 16
d = 40
W 33.3 54.0 (12.0) 16

II. Minimum Metric

1 2 3 4 5
Level of d Type of Theory Mean No. of
Team Member Prediction Effort Subjects

d=0 33.3 42.6 (14.8) 20

S 19.6 26.0 (17.9) 18

d = 40
W 38.5 46.8 (14.8) 18

III. Maximum Metric

1 2 3 4 5
Level of d Type of Theory Mean No. of
Team Member Prediction Effort Subjects
d=0 33.3 45.0 (13.1) 20
S 49.7 47.3 (14.9) 16
d = 40
W 0.3 21.7 (19.9) 16
*: Numbers in the parentheses are the standard deviations.
#: S and W represent the stronger and weaker members, respectively.
 37

Table 4 Regression of Average Team Effort on Team Composition in Experiment 1

Coefficient Robust S.E. t-stat p-value

Base = d0 condition (d = 0)

Average Metric
(#obs. = 780, #clusters = 52, R2 = .000)
Constant 51.6 2.98 17.33 .000
d40 (d =40) –.1 3.58 –.03 .973

Minimum Metric
(#obs. = 840, #clusters = 56, R2 = .016)

Constant 42.6 3.30 12.89 .000

d40 (d =40) –6.2 4.64 –1.33 .188

Maximum Metric
(#obs. = 780, #clusters = 52, R2 = .047)

Constant 45.0 2.95 15.25 .000

d40 (d =40) –10.5 4.87 –2.16 .035

Table 5 Regression of Average Team Effort on Contest Metric in Experiment 1

Coefficient Robust S.E. t-stat p-value

Base = Average metric

Homogeneous Team (d = 0)
(#obs. = 900, #clusters = 60, R2 = .032)

Constant 51.6 2.98 17.35 .000

Minimum –9.1 4.45 –2.04 .046
Maximum –6.6 4.20 –1.58 .120

Heterogeneous Team (d = 40)

(#obs. = 1500, #clusters = 100, R2 = .109)

Constant 51.5 1.97 26.12 .000

Minimum –15.1 3.80 –3.98 .000
Maximum –17.0 4.33 –3.93 .000
 38

Figure 1 Average Team Effort across Rounds in Experiment 1

1A. Average Metric

70
60
50
40
Effort

d0: M=51.6
Series1
30
20 d40: M=51.5
Series2

10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round

1B. Minimum Metric

70

60

50

40
Effort

d0: M=42.6
Series1
30

20 d40: M=36.4
Series2

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Round

1C. Maximum Metric

70
60
50
40
Effort

d0: M=45.0
Series1
30
20 d40: M=34.5
Series2

10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round
 39

Figure 2 Average Effort across Rounds for Each Contest Metric in Experiment 1

2A. Homogeneous Team (d =0)

80
70
60
50
Effort

40 Avg: M=51.6
Series1
30 Series2
Min: M=42.6
20 Series3
Max: M=45.0
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round

2B. Heterogeneous Team (d =40)

80
70
60
50
Effort

40 Avg: M=51.5
Series1
30 Series2
Min: M=36.4
20 Series3
Max: M=34.5
10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round

Figure 3 Average Effort of the Stronger and Weaker Members across Rounds in
Experiment 1

3A. Avg-d40 Treatment

70
60
50
40
Effort

Stronger: M=49.0
Series1
30
20 Weaker: M=54.0
Series2

10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round
 40

3B. Min-d40 Treatment

70
60
50
40
Effort

Stronger: M=26.0
Series1
30
20 Weaker: M=46.8
Series2

10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round

3C. Max-d40 Treatment

70
60
50
40
Effort

Stronger: M=47.3
Series1
30
20 Weaker: M=21.7
Series2

10
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round

Figure 4 Average Team Effort across Rounds in Experiment 2

Average Metric
70

60

50

40
Effort

Avg-d0: M=51.6
Series1
30

20 Avgcost: M=53.5
Series2

10

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Round
 41

Appendix A1: Derivation of the Marginal Probability of Winning (MPW)

To derive the marginal probability of winning the team contest (MPW) for a team
member in the contest, we first characterize the probability that a team wins the contest, and
then differentiate this probability with respect to the effort of each team member. In this
paper, we focus on the symmetric pure-strategy Nash equilibrium for each player in each
type of contest.

I. Contests Based on Average Output

Consider a team contest that consists of two competing teams, with each team having
two members. The two teams compete with each other based on the team output, Yt (where
t = 1, 2 represents the teams). Let Stp (where p = 1, 2) represent each member in team t. The
output of team member Stp is ytp= etp + ktp + εtp, where etp is the effort expended by the team
member, and ktp is a constant that represents the ability endowment of the team member.
The stochastic term εtp is uniformly distributed over the interval [–q, q] and independent
across team members.
1
Under the average metric, the output of team t is 𝑌𝑡 = 2 (∑2𝑝=1 𝑒𝑡𝑝 + ∑2𝑝=1 𝜀𝑡𝑝 +
1
∑2𝑝=1 𝑘𝑡𝑝 ) = (𝐸𝑡 + 𝜂𝑡 + 𝐾), where 𝐸𝑡 = ∑2𝑝=1 𝑒𝑡𝑝 , 𝜂𝑡 = ∑2𝑝=1 𝜀𝑡𝑝 and 𝐾 = ∑2𝑝=1 𝑘𝑡𝑝 . Note that
2

𝐾 cancels out when comparing team output across teams. This implies that neither the level
of 𝑘𝑡1 nor 𝑘𝑡2 (and hence the value of d) affects the probability that a team wins the contest.
As a result, the MPW is identical across homogeneous and heterogeneous teams, and also
across the stronger and weaker members. Since the procedure for deriving the MPW is
identical across homogeneous and heterogeneous teams, we report only the derivation for
the former here.

It is easy to see that the team with higher 𝐸𝑡 + 𝜂𝑡 will win the contest. The density
function of 𝜂𝑡 is
0 for 𝜂 < −2𝑞
𝜂+2𝑞
for − 2𝑞 ≤ 𝜂 < 0
(2𝑞)2
𝑓 2 (𝜂) = −𝜂+2𝑞 . (A1)
(2𝑞)2
for 0 ≤ 𝜂 ≤ 2𝑞
{0 for 𝜂 > 2𝑞
 42

To solve for the probability of winning and the MPW, we need to consider the
following two cases.

Case 1: 𝐸1 − 𝐸2 ≥0

1) Probability of Winning for Team 1

Given any random realization of 𝜂1 , Team 1 wins the contest only if 𝐸1 + 𝜂1 > 𝐸2 + 𝜂2 ,
i.e., 𝜂2 < 𝐸1 + 𝜂1 − 𝐸2 . The probability that 𝜂2 satisfies the above condition determines the
conditional probability of Team 1 being the winning team given a realization of 𝜂1 :
𝐸 +𝜂1 −𝐸2
1
Prob(Team 1 wins |𝜂1 ) = ∫−2𝑞 𝑓 2 (𝜂2 ) 𝑑𝜂2 . (A2)

With the above setup, we solve for the probability of winning and the MPW of Team 1 by
considering all possible realizations of 𝜂1 :

 −2𝑞 ≤ 𝜂1 ≤ −𝐸1 + 𝐸2
𝜂1 +2𝑞
When −2𝑞 ≤ 𝜂1 ≤ −𝐸1 + 𝐸2 , the density function for 𝜂1 is , and the conditional
(2𝑞)2
𝐸 +𝜂1 −𝐸2 𝜂2 +2𝑞
probability of winning for Team 1 is ∫−2𝑞
1
𝑑𝜂2 ;
(2𝑞)2

 −𝐸1 + 𝐸2 ≤ 𝜂1 < 0
𝜂1 +2𝑞
When −𝐸1 + 𝐸2 ≤ 𝜂1 <0, the density function for 𝜂1 is still , and the conditional
(2𝑞)2
1 𝐸 +𝜂1 −𝐸2 −𝜂2 +2𝑞
probability of winning for Team 1 is + ∫0 1 𝑑𝜂2 ;
2 (2𝑞)2

 0 ≤ 𝜂1 < −𝐸1 + 𝐸2 + 2𝑞
−𝜂1 +2𝑞
When 0≤ 𝜂1 < −𝐸1 + 𝐸2 + 2𝑞, the density function for 𝜂1 is , and the conditional
(2𝑞)2
1 𝐸 +𝜂1 −𝐸2 −𝜂2 +2𝑞
probability of winning for Team 1 is + ∫0 1 𝑑𝜂2 ;
2 (2𝑞)2

 −𝐸1 + 𝐸2 + 2𝑞 ≤ 𝜂1 ≤ 2𝑞
−𝜂1 +2𝑞
When −𝐸1 + 𝐸2 + 2𝑞 ≤ 𝜂1 ≤ 2𝑞 , the density function for 𝜂1 is , and the
(2𝑞)2

conditional probability of winning for Team 1 is one because we already assume that 𝐸1 −
𝐸2 ≥ 0 so 𝐸1 + 𝜂1 is always larger than 𝐸2 + 𝜂2 .

Given this, we can calculate the unconditional probability that Team 1 wins the contest
by integrating the respective density functions over all possible realizations of 𝜂1 .
 43

Prob(Team 1 wins) =
−𝐸1 +𝐸2 𝐸 −𝐸2 +𝜂1 𝜂2 +2𝑞
1 𝜂1 +2𝑞 0 1 𝐸 −𝐸2 +𝜂1 −𝜂2 +2𝑞 𝜂1 +2𝑞
∫−2𝑞 (∫−2𝑞 (2𝑞)2
𝑑𝜂2 ) (2𝑞)2
𝑑𝜂1 + ∫−𝐸 +𝐸
( + ∫0 1 (2𝑞)2
𝑑𝜂2 ) (2𝑞)2
𝑑𝜂1 +
1 2 2

−𝐸1 +𝐸2 +2𝑞 1 𝐸 −𝐸2 +𝜂1 −𝜂2 +2𝑞 −𝜂1 +2𝑞 2𝑞 −𝜂1 +2𝑞
∫0 ( + ∫0 1 (2𝑞)2
𝑑𝜂2 ) (2𝑞)2
𝑑𝜂1 + ∫−𝐸 1× 𝑑𝜂1 . (A3)
2 1 +𝐸2 +2𝑞 (2𝑞)2

2) Probability of Winning for Team 2

Since there are only 2 teams in the team contest, the probability of winning for Team 2
is simply

Prob(Team 2 wins) = 1 − Prob(Team 1 wins). (A4)

3) Marginal Probability of Winning

We then calculate the MPW for each member in Team 1 (Team 2) by differentiating
formulas A3 (A4) with respect to 𝑒11 and 𝑒12 (𝑒21 and 𝑒22 ), respectively. We find that the
expressions of the MPW are identical across all team members. To economize on space, we
report only the expression of the MPW for team member S11 here:
𝜕Prob(Team 1 wins) 1 3 3 3 2 2 3
= − 96𝑞4 [−3𝑒11 − 3𝑒12 + 3𝑒21 + 9𝑒21 𝑒22 + 9𝑒21 𝑒22 + 3𝑒22 −
𝜕𝑒11
2
3𝑒11 (𝑒12 − 𝑒21 − 𝑒22 )(3𝑒12 − 3𝑒21 − 3𝑒22 − 8𝑞) + 12𝑒21 𝑞+
2 2 (3𝑒
24𝑒21 𝑒22 𝑞 + 12𝑒22 𝑞 − 32𝑞 3 + 3𝑒12 21 + 3𝑒22 + 4𝑞) − 3𝑒12 (𝑒21 +
2 (−9𝑒
𝑒22 )(3𝑒21 + 3𝑒22 + 8𝑞) + 𝑒11 12 + 9𝑒21 + 9𝑒22 + 12𝑞)]. (A5)
1
The MPW for each member in each team reduces to 3𝑞 when evaluated at the symmetric

pure-strategy Nash equilibrium where 𝑒11

∗ ∗
= 𝑒12 ∗
= 𝑒21 ∗
= 𝑒22 = 𝑒 ∗.

Case 2: 𝐸1 − 𝐸2 < 0

To solve for the probability of winning and the MPW when 𝐸1 − 𝐸2 < 0, we start with
Team 2 instead. Since the two teams are identical, the probability that Team 2 wins when
𝐸1 − 𝐸2 < 0 is exactly given by (A3) when 𝐸1 and 𝐸2 are switched. Hence, following the same
1
logic as in Case 1, we can show that the MPW of each member in each team in this case is 3𝑞

as well.
 44

II. Contests Based on Minimum Contribution

To solve for the MPW under the minimum metric, we need to label the team members
slightly differently. Consider a team contest between 2 teams where members 1 and 3 are in
Team 1 and members 2 and 4 are in Team 2. Without loss of generality, we can assume that
e1 + k1 ≥ e2 + k2 ≥ e3 + k3 ≥ e4 + k4.

Given team member i’s (i = 1, 2, 3, 4) random realization of εi, i is ranked above or

outperforms member j only if εj < ei + ki – ej - kj + εi. The probability that εj satisfies the above
condition determines the conditional probability of member i being ranked above member j
given a realization of εi. In other words, we have Prob(𝑖 is ranked above 𝑗|𝜀𝑖 ) =
(𝑒 +𝑘𝑖 −𝑒𝑗 −𝑘𝑗 )+𝜀𝑖 1 𝑃𝑖𝑗 +𝜀𝑖
∫−𝑞𝑖 d𝜀𝑗 = , where Pij = (ei + ki) – (ej + kj) + q. In this way, we can define P12,
2𝑞 2𝑞

P13, P14, P21, P23, P24, P31, P32, P34, P41, P42, and P43.

Since we already assumed that e1 + k1 ≥ e2 + k2 ≥ e3 + k3 ≥ e4 + k4, for all realizations of

ε1 > (e2 + k2) – (e1 + k1) + q = P21, the probability of member 1 being ranked above member 2
is 1. We define the region of random realizations ε1  [P21, q] as the Sure Win Interval (SWI)
of member 1 relative to member 2. Similarly, we can define the other SWIs between any two
members.
Team 1 wins the contest as long as no member in the team is ranked the lowest among
the four members in terms of individual output. This means that the probability of winning
the contest for Team 1 is
𝑃41
(𝑃21 −𝜀1 )(𝑃31 −𝜀1 )(𝑃41 −𝜀1 ) 1
Prob(Team 1 wins) = 1 − ∫ (2𝑞)3
𝑑𝜀1 −
2𝑞
−𝑞
𝑃43 −𝑃31
(𝑃13 −𝜀3 )(𝑃23 −𝜀3 )(𝑃43 −𝜀3 ) 1 (𝑃23 −𝜀3 )(𝑃43 −𝜀3 ) 1
[∫ (2𝑞)3
𝑑𝜀3 +∫ (2𝑞)2
𝑑𝜀3 +
2𝑞 2𝑞
−𝑃31 −𝑃32
−𝑃32
(𝑃43 −𝜀3 ) 1
∫ 𝑑𝜀3 ] . (A6)
2𝑞 2𝑞
−𝑞

The second term in Equation A6 shows the probability that member 1 is the lowest
performer when the realization ε1 is too small to be in any SWI relative to the other three
members. The term within the square brackets indicates the probability that member 3
achieves the lowest individual output given different levels of realization of ε3.
 45

The probability of winning for Team 2 is simply

Prob(Team 2 wins) = 1 − Prob(Team 1 wins). (A7)

Homogeneous Team. Taking the first derivative of Formula A6 (A7) with respect to e1 and
e3 (e2 and e4), and letting k1 = k2 = k3 = k4 = k and 𝑒1∗ = 𝑒2∗ = 𝑒3∗ = 𝑒4∗ = 𝑒 ∗ , we obtain the
1
expression for the MPW for each member, which is 3𝑞.

Heterogeneous Team. Following the same procedure as for the homogeneous team, but
now letting 𝑒1∗ = 𝑒2∗ = 𝑒𝑠∗ , 𝑒3∗ = 𝑒4∗ = 𝑒𝑤
∗
, k1 = k2 = k + d, and k3 = k4 = k, (where 𝑒𝑠∗ and 𝑒𝑤
∗

represent the equilibrium effort of the stronger and weaker members, respectively), we can
obtain the expressions for the MPW for the stronger members (i.e., members 1 and 2)
(8𝑞−𝑚)(2𝑞−𝑚)2
MPW (Stronger)= , (A8)
96𝑞 4

and the weaker members (i.e., members 3 and 4),

32𝑞 3 +12𝑞 2 𝑚−𝑚3
MPW (Weaker)= , (A9)
96𝑞 4

respectively, where 𝑚 = 𝑒𝑠∗ − 𝑒𝑤

∗
+ 𝑑.

III. Contests Based on Maximum Contribution

Using the same setup as in the contest based on the minimum contribution, we can
derive the MPW under the maximum metric. Team 1 wins the contest when either member
1 or member 3 has the highest individual output among the four members, which means that
the probability of winning the contest for Team 1 is
𝑞 𝑃21
1 𝑃12 +𝜀1 1
Prob(Team 1 wins) = [∫ 𝑑𝜀1 + ∫ 𝑑𝜀1 +
2𝑞 2𝑞 2𝑞
𝑃21 𝑃31
𝑃31 𝑃41
(𝑃12 +𝜀1 )(𝑃13 +𝜀1 ) 1 (𝑃12 +𝜀1 )(𝑃13 +𝜀1 )(𝑃14 +𝜀1 ) 1
∫ 𝑑𝜀1 + ∫ 𝑑𝜀1 ] +
2𝑞 2 2𝑞 2𝑞 3 2𝑞
𝑃41 −𝑞
𝑞 𝑃43
(𝑃31 +𝜀3 )(𝑃32 +𝜀3 ) 1 (𝑃31 +𝜀3 )(𝑃32 +𝜀3 )(𝑃34 +𝜀3 ) 1
[∫ 𝑑𝜀3 + ∫ 𝑑𝜀3 ]. (A10)
2𝑞 2 2𝑞 2𝑞 3 2𝑞
𝑃43 −𝑞

The first term in Equation A10 shows the probability that member 1 is the highest performer
given different realizations of ε1. The second term indicates the probability that member 3
achieves the highest individual output given different levels of realization of ε3.
Again, the probability of winning for Team 2 is
Prob(Team 2 wins) = 1 − Prob(Team 1 wins). (A11)
 46

Homogeneous Team. Taking the first derivative of Formula A10 (A11) with respect to e1
and e3 (e2 and e4), respectively, and setting k1 = k2 = k3 = k4 = k and 𝑒1∗ = 𝑒2∗ = 𝑒3∗ = 𝑒4∗ = 𝑒 ∗ ,
1
we obtain the expression for the MPW for each member, which is 3𝑞.

Heterogeneous Team. Following the same procedure as above, with the exception that we
let 𝑒1∗ = 𝑒2∗ = 𝑒𝑠∗ , 𝑒3∗ = 𝑒4∗ = 𝑒𝑤
∗
, k1 = k2 = k + d, and k3 = k4 = k, we can obtain the expressions
for the MPW of the stronger members (i.e., members 1 and 2)
32𝑞 3 +12𝑞 2 𝑚−𝑚3
MPW (Stronger)= , (A12)
96𝑞 4

and the weaker members (i.e., members 3 and 4),

(8𝑞−𝑚)(2𝑞−𝑚)2
MPW (Weaker)= , (A13)
96𝑞 4

respectively. Again, 𝑚 = 𝑒𝑠∗ − 𝑒𝑤

∗
+ 𝑑.
 47

Appendix A2: Proofs of Lemmas 1A and 1B

Lemma 1A states that when winning the contest depends on the minimum output
within the team, total team effort decreases as the degree of heterogeneity in team
composition (in a heterogeneous team) increases. Lemma 1B shows that the same result
holds under the maximum metric.

We begin by noting that the sum of the marginal probability of winning of the team
2 𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
members when d > 0 (i.e., a heterogeneous team) is − . Next, we take the
3𝑞 48𝑞 2

2 𝑚[(3𝑞−𝑚)2 +3𝑞 2 ] (2𝑞−𝑚)2

derivative of − with respect to m. This yields − , which is always
3𝑞 48𝑞 2 16𝑞 4

2 𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
negative on the interval (0, 2q). Hence, 3𝑞 − must be decreasing in m. This
48𝑞 2

means that team effort in the contests where winners are based on the minimum and
maximum contribution within the team decreases in m.

Contest based on Minimum Contribution. To examine the relationship between m and d,

we first solve for the value of m using the first-order condition for effort in Equation 4 and
the marginal probabilities of winning (MPW) for the stronger and weaker members in the
team (Equations A8 and A9 in Appendix A1). This yields 𝑚=
16𝑏𝑞 3 +4𝑞𝑤−√−64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 −4𝑞𝑤)2
. Taking the derivative of m with respect to d, we
2𝑤
16𝑏𝑞 3
obtain , which is positive. Hence, we show that m is increasing in d.
√−64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 −4𝑞𝑤)2

2 𝑚[(3𝑞−𝑚)2 +3𝑞2 ]
Finally, recall that 3𝑞 − is decreasing in m, and hence we can conclude that it
48𝑞 2

must be also decreasing in d.

Contest based on Maximum Contribution. Using the same approach as above, we can
−16𝑏𝑞 3 +4𝑞𝑤+√64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 +4𝑞𝑤)2
show that 𝑚 = . The first derivative of m with respect to
2𝑤
16𝑏𝑞 3
d is , which is also positive. This shows that m is increasing in d, and
√64𝑑𝑏𝑞 3 𝑤+(−16𝑏𝑞 3 +4𝑞𝑤)2

we can again conclude that the total effort in this contest must be also decreasing in d.
 48

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 50

WEB APPENDIX

How Does Team Composition Affect Effort in Contests?

A Theoretical and Experimental Analysis

Hua Chen and Noah Lim+

Instructions for the Contest with the Average Metric, Heterogeneous Teams

Instructions for Experiment

1. Introduction
This is an experiment in decision making. The instructions are simple, if you follow them
carefully and make good decisions, you could earn a considerable amount of money which
will be paid to you in cash immediately and privately after the experiment. What you earn
today partly depends on your decisions, partly on the decisions of others, and partly on
chance. Do not look at the decisions of others, talk, laugh or engage in any activities unrelated
to the experiment. You will be warned if you violate this rule the first time. If you violate this
rule twice, we will cancel the experiment immediately and your earnings will be $0.
2. Steps
There are a total of 15 decision rounds in this study. At the start of the experiment, half of
you are randomly designated as TYPE 1 players and the rest are randomly designated as
TYPE 2 players. The TYPE of player you have been assigned to will remain the same for the
15 rounds. The difference between TYPE 1 and TYPE 2 players will be described in detail
below.
Team Formation and Matching
In every round, you will be randomly and anonymously matched with another participant
who is of a different type to form a team. That is, each team will consist of one TYPE 1 player
and one TYPE 2 player.
Your team will then be randomly and anonymously matched with another team that is
formed in exactly the same way. That is, your team will be matched with other team that also
consists of one TYPE 1 player and one TYPE 2 player.

+Chen:Terry College of Business, University of Georgia, huachen@uga.edu. Lim: Wisconsin School of Business,
University of Wisconsin-Madison, nlim@bus.wisc.edu. Both authors contributed equally.
 51

After each round, you will be re-matched with other participants, so that both the identities
of your teammate and those of the participants in the other team will be different in every
round.
Choosing a Decision Number
Please refer to the “Decision Cost Table” now. Your task in every round is to select a Decision
Number, which ranges from 0 to 100. Associated with each Decision Number is a Decision
Cost, which is listed on the same row in the next column. If you choose a certain Decision
Number, the corresponding Decision Cost will be subtracted from your earnings. We will
detail this later.
After you have selected your Decision Number, the computer will generate your Random
Number. The Random Number ranges from −50 to 50. Each number in this range has an
equal chance of being drawn. The Random Number that the computer generates does NOT
depend on the Decision Number you choose.
Then, the computer will generate your Final Number, which is calculated as follows:
 For TYPE 1 Players:
Final Number = Your Decision Number + Your Random Number + 40
 For TYPE 2 Players:
Final Number = Your Decision Number + Your Random Number
Note that the Final Number for TYPE 1 players starts off 40 points higher than that of TYPE
2 players. This is the only difference between the two TYPES of players. Note also that
depending on the Decision Numbers chosen and the Random Numbers drawn, the Final
Number of TYPE 2 players can be higher than that of the TYPE 1 players.
The Final Numbers of your teammate and those in the other team are determined in the same
manner.
Computing Your Team Final Number
The computer will then generate the Team Final Number of your team in the following
manner:
Team Final Number = (Your Final Number + Your Teammate’s Final Number)/2
In other words, your Team Final Number is Average of the two Final Numbers in your team
(which consists of one TYPE 1 and one TYPE 2 player).
The Team Final Number of the other team that your team is matched with is also determined
in exactly the same manner.
Ranking the Team Final Numbers
The computer will rank the Team Final Numbers of the 2 matched-up teams from high (1st)
to low (2nd). That is, the team with the higher Team Final Number will be ranked 1st. If your
team is ranked 1st, your team will receive a Fixed Payment of $2.8, which will be equally split
between you and your teammate. If your team is ranked 2nd, your team will receive a Fixed
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Payment of $0.8, which will be equally split between you and your teammate. In this way,
the Fixed Payment is the same for both TYPE 1 and TYPE 2 players. Whether your team’s
Fixed Payment is $2.8 or $0.8 depends whether your Team Final Number is higher or lower
than that of the other team.
Determining Your Cash Earnings
Your Cash Earnings in each round will be:
a. $ 1.4 minus Your Decision Cost, if your team is ranked 1st.
b. $ 0.4 minus Your Decision Cost, if your team is ranked 2nd.
Note that if you choose a higher Decision Number, your Final Number will be higher. Your
Team Final Number will also be higher and therefore more likely to be ranked first. However,
choosing a higher Decision Number also means that you will have to pay a higher Decision
Cost, which reduces your earnings.
Repeat for 14 more Rounds
We will repeat the same procedure for 14 more rounds. In each round, you will choose a
Decision Number again (you may pick the same one or a different one). The computer will
generate your Random Number, calculate the Final Number and the Team Final Number,
rank the Team Final Numbers for 2 teams, and then compute your payoff for that round.
Recall that the identities of the participants you are matched with in the same team and in
the other team will change every round.
Your Total Cash Earnings will be the sum of the cash earnings across the 15 rounds. Also,
note that the computer will generate a random number separately in every round and that
the values of random numbers that have been drawn do not affect the values of future
numbers that will be drawn.
We will pay everyone privately after all the participants have completed the experiment.
Practice Rounds and Example
Before we begin the experiment, we will go through one example and 3 practice rounds to
familiarize you with the procedure. In these practice rounds, you will be playing against the
computer (and not the other participants) and there will be no monetary payoffs. After that,
we will begin the experiment. Are there any questions?