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Lotteries vs. All-Pay Auctions in Fair and Biased Contests

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  • Gil S. Epstein
  • Yosef Mealem
  • Shmuel Nitzan

Abstract

The form of contests for a single fixed prize can be determined by a designer who maximizes the contestants' efforts. This paper establishes that, under common knowledge of the two asymmetric contestants' prize valuations, a fair Tullock-type endogenously determined lottery is always superior to an all-pay-auction; it yields larger expected efforts (revenues) for the contest designer. If the contest can be unfair (structural discrimination is allowed), then the designer's payoff under the optimal lottery is equal to his expected payoff under the optimal all-pay auction.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics & Politics.

Volume (Year): 25 (2013)
Issue (Month): 1 (03)
Pages: 48-60

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Handle: RePEc:bla:ecopol:v:25:y:2013:i:1:p:48-60

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References

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  1. Gil S. Epstein & Ira N. Gang, 2006. "Good Governance and Good Aid Allocation," Departmental Working Papers 200627, Rutgers University, Department of Economics.
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  3. Jörg Franke, 2007. "Does Affirmative Action Reduce Effort Incentives? A Contest Game Analysis," UFAE and IAE Working Papers 711.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December.
  5. Epstein, Gil S. & Mealem, Yosef & Nitzan, Shmuel, 2011. "Political culture and discrimination in contests," Journal of Public Economics, Elsevier, vol. 95(1), pages 88-93.
  6. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
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  8. Gil Epstein & Shmuel Nitzan, 2006. "The Politics of Randomness," Social Choice and Welfare, Springer, vol. 27(2), pages 423-433, October.
  9. Alcalde, José & Dahm, Matthias, 2010. "Rent seeking and rent dissipation: A neutrality result," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 1-7, February.
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  14. Che, Yeon-Koo & Gale, Ian, 1997. " Rent Dissipation When Rent Seekers Are Budget Constrained," Public Choice, Springer, vol. 92(1-2), pages 109-26, July.
  15. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
  16. Marco Runkel, 2006. "Optimal contest design, closeness and the contest success function," Public Choice, Springer, vol. 129(1), pages 217-231, October.
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  18. Fang, Hanming, 2002. " Lottery versus All-Pay Auction Models of Lobbying," Public Choice, Springer, vol. 112(3-4), pages 351-71, September.
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  26. Gradstein, Mark, 1998. "Optimal contest design: volume and timing of rent seeking in contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 575-585, November.
  27. Lien, Da-Hsiang Donald, 1990. "Corruption and allocation efficiency," Journal of Development Economics, Elsevier, vol. 33(1), pages 153-164, July.
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Citations

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Cited by:
  1. Yosef Mealem & Shmuel Nitzan, 2013. "Direct and Structural Discrimination in Contests," CESifo Working Paper Series 4518, CESifo Group Munich.
  2. Franke, Jörg & Kanzow, Christian & Leininger, Wolfgang & Schwartz, Alexandra, 2013. "Lottery versus All-Pay Auction Contests: A Revenue Dominance Theorem," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79998, Verein für Socialpolitik / German Economic Association.
  3. Yosef Mealem & Shmuel Nitzan, 2012. "Equity and Effectiveness of Optimal Taxation in Contests under an All-Pay Auction," CESifo Working Paper Series 3712, CESifo Group Munich.
  4. Yosef Mealem & Shmuel Nitzan, 2012. "Differential Prize Taxation and Structural Discrimination in Contests," CESifo Working Paper Series 3831, CESifo Group Munich.

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