Professor Wang Zhewei’s Research on Optimal Performance Bundling Design in Multi-dimensional Competitions Published in International Journal of Industrial Organization (IJIO)
Recently, the academic paper Performance Bundling in Multi-dimensional Competitions, completed by Professor Wang Zhewei from the School of Economics as the corresponding author, was officially published in International Journal of Industrial Organization (IJIO), one of the top journals in industrial organization economics. The other two co-authors are Professor Lu Jingfeng from the National University of Singapore and Associate Professor Shen Bo from Wuhan University.
This paper studies the optimal contest design for contest designers to use performance bundling to incentivize contestants to exert efforts in a multi-dimensional competition environment. The study finds that in addition to the beneficial cost-saving effect (reducing the expected prize-setting cost of contest designers at a given performance level), performance bundling may also produce an imbalance effect that reduces the level of competition (performance bundling increases the gap in comprehensive ability among contestants). The cost-saving effect weakens with the increase of the degree of ability asymmetry among contestants, while the imbalance effect strengthens with the increase of the degree of ability asymmetry among contestants. Therefore, the main findings of this paper are as follows: pure or partial performance bundling is necessary only when the gap in comprehensive ability among contestants is small. Otherwise, a set of independent single-dimensional contests without any performance bundling factors is optimal.
The literature on contract theory shows that in an environment where a principal needs to incentivize an agent to exert efforts in multiple dimensions, pure performance bundling is optimal, that is, the incentive method with the minimum expected cost for the principal is: reward the agent with a multi-dimensional grand prize if and only if he succeeds in all dimensions, while the single-dimensional reward is always zero. However, this paper finds that in a multi-dimensional competition environment, if the gap in comprehensive ability among contestants is large, it is necessary to set reasonable single-dimensional rewards.
Professor Wang Zhewei’s main research interests include contest theory, organizational economics, game theory, etc. His research findings have been published in international prestigious journals such as Games and Economic Behavior, Journal of Economic Behavior & Organization, Journal of Mathematical Economics, and International Journal of Industrial Organization.
