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Carrots And Sticks: Prizes And Punishments In Contests

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  • BENNY MOLDOVANU
  • ANER SELA
  • XIANWEN SHI

Abstract

We study optimal contest design in situations where the designer can reward high performance agents with positive prizes and punish low performance agents with negative prizes. We link the optimal prize structure to the curvature of distribution of abilities in the population. In particular, we identify conditions under which, even if punishment is costly, punishing the bottom is more effective than rewarding the top in eliciting effort input. If punishment is costless, we study the optimal number of punishments in the contest.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 50 (2012)
Issue (Month): 2 (04)
Pages: 453-462

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Handle: RePEc:bla:ecinqu:v:50:y:2012:i:2:p:453-462

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References

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  1. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1784, Econometric Society.
  2. Moldovanu, Benny & Sela, Aner, 2002. "Contest Architecture," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 02-06, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  4. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 99-75, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 26(1), pages 133-43, January.
  6. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  7. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, American Economic Association, vol. 88(1), pages 276-89, March.
  8. James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 893-902, June.
  9. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, Elsevier, vol. 14(4), pages 627-644, November.
  10. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 85(4), pages 872-90, September.
  11. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 338-363.
  12. Robert Akerlof & Richard Holden, 2012. "The nature of tournaments," Economic Theory, Springer, Springer, vol. 51(2), pages 289-313, October.
  13. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(3), pages 573-605, June.
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Cited by:
  1. E. Glenn Dutcher & Loukas Balafoutas & Florian Lindner & Dmitry Ryvkin & Matthias Sutter, 2013. "Strive to be first or avoid being last: An experiment on relative performance incentives," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2013-08, Faculty of Economics and Statistics, University of Innsbruck.
  2. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers, Exeter University, Department of Economics 1405, Exeter University, Department of Economics.
  3. Thomas, Jonathan P. & Wang, Zhewei, 2013. "Optimal punishment in contests with endogenous entry," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 91(C), pages 34-50.
  4. Lindner, Florian & Dutcher, E. Glenn & Balafoutas, Loukas & Ryvkin, Dmitry & Sutter, Matthias, 2013. "Strive to be first and avoid being last: An experiment on relative performance incentives," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79885, Verein für Socialpolitik / German Economic Association.
  5. Kiho Yoon, 2012. "The optimal allocation of prizes in contests: An auction approach," Discussion Paper Series 1207, Institute of Economic Research, Korea University.
  6. Jason J Lepore & Alison Mackey & Tyson B Mackey, 2012. "Punishment versus Reward in All-pay Contests with Perfect Information," Economics Bulletin, AccessEcon, vol. 32(4), pages 3090-3097.
  7. Chiappinelli, Olga, 2014. "An elimination contest with non-sunk bids," MPRA Paper 56140, University Library of Munich, Germany.
  8. Segev, Ella & Sela, Aner, 2014. "Sequential all-pay auctions with noisy outputs," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 251-261.
  9. Sela, Aner, 2009. "Best-of-Three All-Pay Auctions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7224, C.E.P.R. Discussion Papers.
  10. Ezra Einy & Ori Haimanko & Ram Orzach & Aner Sela, 2013. "Common-Value All-Pay Auctions With Asymmetric Information," Working Papers, Ben-Gurion University of the Negev, Department of Economics 1306, Ben-Gurion University of the Negev, Department of Economics.

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