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Competitive Problem Solving and the Optimal Prize Schemes

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  • Toru Suzuki

    ()
    (Max Planck Institute of Economics, Jena)

Abstract

Agents compete to solve a problem. Each agent knows own computational capacity as private information and simultaneously chooses either a risky or a safe problem solving method. This paper analyzes the optimal prize schemes from the perspective of the prize designer who wishes to find a solution as quick as possible. It is shown that (i) the winner- take-all scheme can induce excessive risk taking and make problem solving slower (ii) prize schemes with milder competitive pressure induce the optimal risk taking and quicker problem solving.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2010-083.

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Date of creation: 02 Dec 2010
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Handle: RePEc:jrp:jrpwrp:2010-083

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Keywords: Optimal prize scheme; Risk taking; Problem solving;

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  1. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, vol. 93(3), pages 646-671, June.
  3. Moldovanu, Benny & Sela, Aner, 2002. "Contest Architecture," Sonderforschungsbereich 504 Publications 02-06, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  4. Kräkel, Matthias, 2007. "Optimal Risk Taking in an Uneven Tournament Game with Risk Averse Players," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 200, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Hvide, H.K. & Kristiansen, E.G., 1999. "Risk Taking in Selection Contests," Papers 5-99, Tel Aviv.
  6. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
  7. Madhav V. Rajan & Stefan Reichelstein, 2006. "Subjective Performance Indicators and Discretionary Bonus Pools," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 585-618, 06.
  8. Dekel, E. & Scotchmer, S., 1999. "On the Evolution of Attitudes Towards Risk in Winner-Take-All Games," Papers 4-99, Tel Aviv.
  9. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  10. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
  11. Fershtman, Chaim & Rubinstein, Ariel, 1997. "A Simple Model of Equilibrium in Search Procedures," Journal of Economic Theory, Elsevier, vol. 72(2), pages 432-441, February.
  12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
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