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Differential Prize Taxation and Structural Discrimination in Contests

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  • Yosef Mealem
  • Shmuel Nitzan

Abstract

This paper evaluates differential prize taxation and structural discrimination as a means of increasing efforts in the most widely studied contests. We establish that a designer who maximizes efforts subject to a balanced-budget constraint prefers dual discrimination, namely, change of the contestants’ prize valuations as well as bias of the impact of their efforts. Optimal twofold discrimination is often superior to any single mode of discrimination under any lottery. Surprisingly, in the general N-player contest game, under the prototypical simple lottery, it can yield the maximal possible efforts: the highest valuation of the contested prize. If a single mode of discrimination is allowed, then differential taxation is superior to structural discrimination.

Suggested Citation

  • Yosef Mealem & Shmuel Nitzan, 2012. "Differential Prize Taxation and Structural Discrimination in Contests," CESifo Working Paper Series 3831, CESifo.
    • Handle: RePEc:ces:ceswps:_3831
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    References listed on IDEAS

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    Cited by:

    1. Cohen, Chen & Darioshi, Roy & Nitzan, Shmuel, 2022. "Optimal favoritism and maximal revenue: A generalized result," European Journal of Political Economy, Elsevier, vol. 73(C).
    2. Yosef Mealem & Shmuel Nitzan, 2014. "Equity and effectiveness of optimal taxation in contests under an all-pay auction," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 437-464, February.
    3. 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; balanced-budget-constraint; differential prize taxation; structural discrimination; dual polarized discrimination; contest success function; 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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