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Lotteries vs. All-Pay Auctions in Fair and Biased Contests

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Author Info

  • Epstein, Gil S.

    ()
    (Bar-Ilan University)

  • Mealem, Yosef

    ()
    (Netanya Academic College)

  • Nitzan, Shmuel

    ()
    (Bar-Ilan University)

Abstract

The form of contests for a single fixed prize can be determined by a designer who maximizes the contestants' efforts. This paper establishes that, under common knowledge of the two asymmetric contestants' prize valuations, a fair Tullock-type endogenously determined lottery is always superior to an all-pay-auction; it yields larger expected efforts (revenues) for the contest designer. If the contest can be unfair (structural discrimination is allowed), then the designer's payoff under the optimal lottery is equal to his expected payoff under the optimal all-pay auction.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7032.

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Length: 21 pages
Date of creation: Nov 2012
Date of revision:
Publication status: published in: Economics and Politics, 2013, 25(1), 48–60.
Handle: RePEc:iza:izadps:dp7032

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Related research

Keywords: endogenous lottery; discrimination; efforts (revenue) maximization; contest design; all-pay auction;

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References

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Citations

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Cited by:
  1. Yosef Mealem & Shmuel Nitzan, 2014. "Equity and effectiveness of optimal taxation in contests under an all-pay auction," Social Choice and Welfare, Springer, Springer, vol. 42(2), pages 437-464, February.
  2. Jörg Franke & Christian Kanzow & Wolfgang Leininger & Alexandra Schwartz, 2012. "Lottery versus All-Pay Auction Contests – A Revenue Dominance Theorem," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0315, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Yosef Mealem & Shmuel Nitzan, 2013. "Direct and Structural Discrimination in Contests," CESifo Working Paper Series 4518, CESifo Group Munich.
  4. Yosef Mealem & Shmuel Nitzan, 2012. "Differential Prize Taxation and Structural Discrimination in Contests," CESifo Working Paper Series 3831, CESifo Group Munich.

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