Sorting and communication in weak-link group contests

Abstract:

We experimentally study the effects of sorting and communication in contests between groups of heterogeneous players whose within-group efforts are perfect complements. Contrary to the common wisdom that competitive balance bolsters performance in contests, in this setting theory predicts that aggregate output increases in the variation in abilities between groups, i.e., it is maximized by the most unbalanced sorting of players. However, the data does not support this prediction. In the absence of communication, we find no effect of sorting on aggregate output, while in the presence of within-group communication aggregate output is 33% higher under the balanced sorting as compared to the unbalanced sorting. This reversal of the prediction is in line with the competitive balance heuristic. The results have implications for the design of optimal groups in organizations using relative performance pay.