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Equity and Effectiveness of Optimal Taxation in Contests under an All-Pay Auction

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  • Yosef Mealem
  • Shmuel Nitzan

Abstract

The means of contest design may include differential taxation of the prize. This paper establishes that, given a revenue-maximizing contest designer who faces a balanced-budget constraint, the optimal taxation scheme corresponding to an all-pay auction is appealing in two senses. First, it ensures exceptional equitable final prize valuations. Second, it is effective; it yields total contestants’ efforts that are larger than those obtained under almost any Tullock-type lottery. Furthermore, when a budget surplus is allowed, the superiority of optimal taxation under the APA is preserved in terms of equity and effectiveness relative to optimal taxation under any contest success function.

Suggested Citation

  • Yosef Mealem & Shmuel Nitzan, 2012. "Equity and Effectiveness of Optimal Taxation in Contests under an All-Pay Auction," CESifo Working Paper Series 3712, CESifo.
    • Handle: RePEc:ces:ceswps:_3712
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    References listed on IDEAS

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    Cited by:

    1. Yizhaq Minchuk & Aner Sela, 2021. "Subsidy and Taxation in All-Pay Auctions under Incomplete," Working Papers 2104, Ben-Gurion University of the Negev, Department of Economics.
    2. Betto, Maria & Thomas, Matthew W., 2024. "Asymmetric all-pay auctions with spillovers," Theoretical Economics, Econometric Society, vol. 19(1), January.
    3. Minchuk, Yizhaq & Sela, Aner, 2023. "Subsidy and taxation in all-pay auctions under incomplete information," Games and Economic Behavior, Elsevier, vol. 140(C), pages 99-114.
    4. Cohen, Chen & Darioshi, Roy & Nitzan, Shmuel, 2022. "Optimal favoritism and maximal revenue: A generalized result," European Journal of Political Economy, Elsevier, vol. 73(C).
    5. Subhasish M. Chowdhury & Patricia Esteve‐González & Anwesha Mukherjee, 2023. "Heterogeneity, leveling the playing field, and affirmative action in contests," Southern Economic Journal, John Wiley & Sons, vol. 89(3), pages 924-974, January.
    6. Yosef Mealem & Shmuel Nitzan, 2012. "Differential Prize Taxation and Structural Discrimination in Contests," CESifo Working Paper Series 3831, CESifo.
    7. MEALEM, Yosef & NITZAN, Shmuel & UI, Takashi & 宇井, 貴志, 2016. "The Advantage of Dual Discrimination in Lottery Contest Games," Discussion paper series HIAS-E-34, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    8. Lu, Jingfeng & Wang, Zhewei & Zhou, Lixue, 2022. "Optimal favoritism in contests with identity-contingent prizes," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 40-50.
    9. Gil Epstein & Yosef Mealem, 2015. "Politicians, governed versus non-governed interest groups and rent dissipation," Theory and Decision, Springer, vol. 79(1), pages 133-149, July.

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    More about this item

    Keywords

    contest design; revenue maximization; balanced-budget constraint; budget surplus; optimal differential taxation; endogenous stakes; all-pay auction; lottery;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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