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Optimal contest design, closeness and the contest success function

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  • Marco Runkel

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Abstract

This paper considers the optimal design of an asymmetric two-player contest when the designer’s payoff depends not only on performance of the contestants, but also on the closeness of the contest measured by the difference in winning probabilities. In contrast to previous studies, the impact of closeness on the optimal prize depends on the shape of the contest success function. Furthermore, including closeness in the designer’s objective may induce the designer to uniformly increase the contestants’ effort costs. A similar result is obtained in case the designer may handicap the stronger contestant, but an even contest is never optimal. Copyright Springer Science+Business Media, B.V. 2006

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File URL: http://hdl.handle.net/10.1007/s11127-006-9030-3
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 129 (2006)
Issue (Month): 1 (October)
Pages: 217-231

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Handle: RePEc:kap:pubcho:v:129:y:2006:i:1:p:217-231

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Closeness; Contest design; Contest success function;

References

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  1. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Amegashie, J Atsu, 1999. " The Design of Rent-Seeking Competitions: Committees, Preliminary and Final Contests," Public Choice, Springer, vol. 99(1-2), pages 63-76, April.
  3. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  4. Stefan Szymanski, 2003. "The Economic Design of Sporting Contests," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1137-1187, December.
  5. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December.
  6. Nti, Kofi O., 2004. "Maximum efforts in contests with asymmetric valuations," European Journal of Political Economy, Elsevier, vol. 20(4), pages 1059-1066, November.
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  8. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
  9. Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, vol. 93(3), pages 646-671, June.
  10. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  11. William E. Stein & Amnon Rapoport, 2004. "Asymmetric Two-Stage Group Rent-Seeking: Comparison of Two Contest Structures," Public Choice, Springer, vol. 118(1_2), pages 151-167, 01.
  12. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June.
  13. Dasgupta, Ani & Nti, Kofi O., 1998. "Designing an optimal contest," European Journal of Political Economy, Elsevier, vol. 14(4), pages 587-603, November.
  14. Szidarovszky, Ferenc & Okuguchi, Koji, 1997. "On the Existence and Uniqueness of Pure Nash Equilibrium in Rent-Seeking Games," Games and Economic Behavior, Elsevier, vol. 18(1), pages 135-140, January.
  15. Nti, Kofi O, 1999. " Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-30, March.
  16. Kohli, Inderjit & Singh, Nirvikar, 1999. " Rent Seeking and Rent Setting with Asymmetric Effectiveness of Lobbying," Public Choice, Springer, vol. 99(3-4), pages 275-98, June.
  17. 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.
  18. Stein, William E, 2002. " Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-36, December.
  19. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-43, January.
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Citations

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Cited by:
  1. Giuseppe Dari-Mattiacci & Eric Langlais & Bruno Lovat & Francesco Parisi, 2013. "Asymmetries in Rent-Seeking," EconomiX Working Papers 2013-5, University of Paris West - Nanterre la Défense, EconomiX.
  2. Einav Hart & Judith Avrahami & Yaakov Kareev & Peter M. Todd, 2014. "Investing Even in Uneven Contests: Effects of Asymmetry on Investment in Experimental All-Pay Contests," Discussion Paper Series dp660, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  3. 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.
  4. Alasdair Brown & Subhasish M. Chowdhury, 2014. "The Hidden Perils of Affirmative Action: Sabotage in Handicap Contests," University of East Anglia Applied and Financial Economics Working Paper Series 062, School of Economics, University of East Anglia, Norwich, UK..
  5. Marco Runkel, 2011. "Revenue Sharing, Competitive Balance and the Contest Success Function," German Economic Review, Verein für Socialpolitik, vol. 12(3), pages 256-273, 08.
  6. Epstein, Gil S. & Mealem, Yosef & Nitzan, Shmuel, 2012. "Lotteries vs. All-Pay Auctions in Fair and Biased Contests," IZA Discussion Papers 7032, Institute for the Study of Labor (IZA).
  7. Epstein, Gil S. & Mealem, Yosef, 2013. "Politicians, Governed vs. Non-Governed Interest Groups and Rent Dissipation," IZA Discussion Papers 7736, Institute for the Study of Labor (IZA).
  8. J. Clark, Derek & Nilssen, Tore, 2010. "Learning by Doing in Contests," Memorandum 09/2010, Oslo University, Department of Economics.
  9. Robert Ritz, 2008. "Influencing rent-seeking contests," Public Choice, Springer, vol. 135(3), pages 291-300, June.
  10. Marco Sahm, 2010. "The Contest Winner: Gifted or Venturesome?," CESifo Working Paper Series 3285, CESifo Group Munich.

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