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Contests where there is variation in the marginal productivity of effort

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Author Info

  • Nirvikar Singh

    ()
    (Economics Department, University of California, Santa Cruz, CA 95064, USA)

  • Donald Wittman

    ()
    (Economics Department, University of California, Santa Cruz, CA 95064, USA)

Abstract

We provide a characterization of participants' behavior in a contest or tournament where the marginal productivity of effort varies across contestants and individual productivity is private information. We then consider the optimal design of such a contest. We first analyze contestant behavior for the usual type of contest, where the highest output wins. Abilities need not be independently distributed. We demonstrate that there is a unique symmetric equilibrium output function, that output is increasing in ability, and that marginal effort is increasing in ability, while effort decreases when the cost of effort increases. Next we consider the case where the highest output need not win, with independently distributed abilities. We analyze the contest designer's decisions in choosing contest rules optimal from her perspective. We show that the output produced, probability of winning, and contest designer's expected revenue are generally increasing in contestants' ability. We examine the relationship between the marginal cost of producing output and marginal utility per dollar of the net award for winning.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 18 (2001)
Issue (Month): 3 ()
Pages: 711-744

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Handle: RePEc:spr:joecth:v:18:y:2001:i:3:p:711-744

Note: Received: July 30, 1998; revised version: August 7, 2000
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Related research

Keywords: Optimal contest; Contest design; Asymmetric information; Correlated abilities.;

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Cited by:
  1. Daniel Lee, 2008. "Going once, going twice, sold! The committee assignment process as an all-pay auction," Public Choice, Springer, vol. 135(3), pages 237-255, June.
  2. Junichiro Ishida, 2006. "Seniority bias in a tournament," Review of Economic Design, Springer, vol. 10(2), pages 143-164, August.
  3. Konrad, Kai A., 2010. "Information alliances in contests with budget limits," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-21, Social Science Research Center Berlin (WZB).
  4. Marco Runkel, 2003. "Optimal Contest Design when the Designer’s Payoff Depends on Competitive Balance," CESifo Working Paper Series 1009, CESifo Group Munich.
  5. Curry Philip A. & Mongrain Steeve, 2009. "Deterrence in Rank-Order Tournaments," Review of Law & Economics, De Gruyter, vol. 5(1), pages 723-740, December.
  6. Jörg Franke & Christian Kanzow & Wolfgang Leininger & Alexandra Schwartz, 2013. "Effort maximization in asymmetric contest games with heterogeneous contestants," Economic Theory, Springer, vol. 52(2), pages 589-630, March.
  7. Munetomo Ando, 2004. "Overconfidence in Economic Contests," Econometric Society 2004 Far Eastern Meetings 708, Econometric Society.
  8. 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.
  9. Ando, Munetomo, 2004. "Division of a contest with identical prizes," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 282-297, June.
  10. Gil Epstein & Igal Milchtaich & Shmuel Nitzan & Mordechai Schwarz, 2007. "Ambiguous political power and contest efforts," Public Choice, Springer, vol. 132(1), pages 113-123, July.
  11. Dmitry Ryvkin, 2007. "Tullock contests of weakly heterogeneous players," Public Choice, Springer, vol. 132(1), pages 49-64, July.

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