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Relative Performance Prizes and Dynamic Incentives in Best-of-N Contests

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  • Xiandeng Jiang

    (Southwestern University of Finance and Economics)

Abstract

This paper introduces a relative performance prize scheme to best-of-N contests. I develop a theoretical model of the best-of-N contest with intermediate prizes that are distributed based on the players’ relative performance. The model predicts that a relative performance prize scheme both increases the players’ level of effort in certain conditions and decreases the performance differential between the winner and the loser in the contest. Empirically, I investigate these theoretical predictions by employing a natural experiment in the group-stage matches of the FIVB (Fédération Internationale de Volleyball) World League and the FIVB World Grand Prix. The results indicate that the introduction of a relative performance prize scheme induces contest participants to intensify their efforts in certain conditions. However, this prize scheme may ultimately result in teams playing fewer sets in matches.

Suggested Citation

  • Xiandeng Jiang, 2018. "Relative Performance Prizes and Dynamic Incentives in Best-of-N Contests," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 53(3), pages 563-590, November.
    • Handle: RePEc:kap:revind:v:53:y:2018:i:3:d:10.1007_s11151-018-9646-8
    DOI: 10.1007/s11151-018-9646-8
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    More about this item

    Keywords

    Best-of-N contest; Relative performance; Intermediate prizes;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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