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The Ponds Dilemma

Author

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  • John Morgan
  • Dana Sisak
  • Felix Várdy

Abstract

Is it better to be a big fish in a small pond or a small fish in a big pond? To find out, we study self†selection into contests. Our simple model predicts that: (i) entry into the big pond – in terms of show†up fees, number or value of prizes – is non†monotonic in ability; (ii) entry into the more meritocratic pond is likewise non†monotonic, exhibiting two interior extrema and disproportionately attracting very low ability types; and (iii) changes in rewards can produce unexpected effects, e.g. higher show†up fees may lower entry, while higher prizes or more meritocracy may lower the average ability of entrants.

Suggested Citation

  • John Morgan & Dana Sisak & Felix Várdy, 2018. "The Ponds Dilemma," Economic Journal, Royal Economic Society, vol. 128(611), pages 1634-1682, June.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:611:p:1634-1682
    DOI: 10.1111/ecoj.12473
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    3. Damiano, Ettore & Li, Hao & Suen, Wing, 2012. "Competing for talents," Journal of Economic Theory, Elsevier, vol. 147(6), pages 2190-2219.
    4. Edwin Leuven & Hessel Oosterbeek & Joep Sonnemans & Bas van der Klaauw, 2011. "Incentives versus Sorting in Tournaments: Evidence from a Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 637-658.
    5. Ghazala Azmat & Marc Möller, 2018. "The Distribution of Talent Across Contests," Economic Journal, Royal Economic Society, vol. 128(609), pages 471-509, March.
    6. Peters, Michael & Severinov, Sergei, 1997. "Competition among Sellers Who Offer Auctions Instead of Prices," Journal of Economic Theory, Elsevier, vol. 75(1), pages 141-179, July.
    7. Juan-José Ganuza & José S. Penalva, 2005. "On Information and Competition in Private Value Auctions," Working Papers 158, Barcelona School of Economics.
    8. Ettore Damiano & Hao Li & Wing Suen, 2010. "First In Village Or Second In Rome?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 263-288, February.
    9. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
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    Citations

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    Cited by:

    1. Amegashie, J. Atsu, 2019. "Quantity-cum-quality contests," European Journal of Political Economy, Elsevier, vol. 58(C), pages 289-297.
    2. Boris Ginzburg, 2021. "Optimal Price Of Entry Into A Competition," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 280-286, January.
    3. Zak, Uri & Avrahami, Judith & Kareev, Yaakov, 2019. "The lions–foxes dilemma: The case of chess tournaments," Journal of Economic Psychology, Elsevier, vol. 75(PB).
    4. Ghazala Azmat & Marc Möller, 2012. "The Distribution of Talent across Contests," Working Papers 600, Barcelona School of Economics.
    5. Ghazala Azmat & Marc Möller, 2018. "The Distribution of Talent Across Contests," Economic Journal, Royal Economic Society, vol. 128(609), pages 471-509, March.
    6. Christian Ewerhart & Marco Serena, 2023. "On the (im-)possibility of representing probability distributions as a difference of i.i.d. noise terms," ECON - Working Papers 428, Department of Economics - University of Zurich, revised Oct 2023.
    7. repec:hal:spmain:info:hdl:2441/2ldopuhqfp8e7oriqpulud8k5o is not listed on IDEAS
    8. Morgan, John & Tumlinson, Justin & Várdy, Felix, 2022. "The limits of meritocracy," Journal of Economic Theory, Elsevier, vol. 201(C).
    9. Ghazala Azmat & Marc Möller, 2018. "The Distribution of Talent Across Contests," Economic Journal, Royal Economic Society, vol. 128(609), pages 471-509, March.
    10. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Information Disclosure in Contests with Endogenous Entry: An Experiment," Management Science, INFORMS, vol. 66(11), pages 5128-5150, November.
    11. Liu, Bin & Lu, Jingfeng, 2023. "Optimal orchestration of rewards and punishments in rank-order contests," Journal of Economic Theory, Elsevier, vol. 208(C).
    12. Ghazala Azmat & Marc Möller, 2016. "The Distribution of Talent across Contests Feedback in Higher Education," Working Papers 789, Queen Mary University of London, School of Economics and Finance.
    13. Martin Grossmann, 2021. "Entry regulations and optimal prize allocation in parallel contests," Review of Economic Design, Springer;Society for Economic Design, vol. 25(4), pages 289-316, December.
    14. Deutscher, Christian & Gürtler, Marc & Gürtler, Oliver & DeVaro, Jed, 2020. "Firm choice and career success - theory and evidence," European Economic Review, Elsevier, vol. 127(C).

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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