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Carrots and Sticks: Prizes and Punishments in Contests

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Author Info

  • Benny Moldovanu
  • Aner Sela
  • Xianwen Shi

Abstract

We study optimal contest design in situations where the designer can reward high performance agents with positive prizes and punish low performance agents with negative prizes. We link the optimal prize structure to the curvature of distribution of abilities in the population. In particular, we identify conditions under which, even if punishment is costly, punishing the bottom is more effective than rewarding the top in eliciting effort input. If punishment is costless, we study the optimal number of punishments in the contest.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-399.

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Length: 19 pages
Date of creation: 25 Mar 2010
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-399

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Related research

Keywords: Contests; All-pay auctions; Punishments; Order Statistics;

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References

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  1. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
  2. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005. "Contests for Status," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  4. 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.
  5. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
  6. 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 841-64, October.
  7. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
  8. Green, Jerry & Stokey, Nancy, 1983. "A Comparison of Tournaments and Contracts," Scholarly Articles 3203644, Harvard University Department of Economics.
  9. James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, vol. 93(3), pages 893-902, June.
  10. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
  11. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  12. Glazer, Amihai & Hassin, Refael, 1988. "Optimal Contests," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 133-43, January.
  13. Robert Akerlof & Richard Holden, 2012. "The nature of tournaments," Economic Theory, Springer, vol. 51(2), pages 289-313, October.
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Citations

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Cited by:
  1. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
  2. E. Glenn Dutcher & Loukas Balafoutas & Florian Lindner & Dmitry Ryvkin & Matthias Sutter, 2013. "Strive to be first or avoid being last: An experiment on relative performance incentives," Working Papers 2013-08, Faculty of Economics and Statistics, University of Innsbruck.
  3. Chiappinelli, Olga, 2014. "An elimination contest with non-sunk bids," MPRA Paper 56140, University Library of Munich, Germany.
  4. Segev, Ella & Sela, Aner, 2014. "Sequential all-pay auctions with noisy outputs," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 251-261.
  5. Sela, Aner, 2009. "Best-of-Three All-Pay Auctions," CEPR Discussion Papers 7224, C.E.P.R. Discussion Papers.
  6. Thomas, Jonathan P. & Wang, Zhewei, 2013. "Optimal punishment in contests with endogenous entry," Journal of Economic Behavior & Organization, Elsevier, vol. 91(C), pages 34-50.
  7. Kiho Yoon, 2012. "The optimal allocation of prizes in contests: An auction approach," Discussion Paper Series 1207, Institute of Economic Research, Korea University.
  8. Jason J Lepore & Alison Mackey & Tyson B Mackey, 2012. "Punishment versus Reward in All-pay Contests with Perfect Information," Economics Bulletin, AccessEcon, vol. 32(4), pages 3090-3097.
  9. Ezra Einy & Ori Haimanko & Ram Orzach & Aner Sela, 2013. "Common-Value All-Pay Auctions With Asymmetric Information," Working Papers 1306, Ben-Gurion University of the Negev, Department of Economics.
  10. Lindner, Florian & Dutcher, E. Glenn & Balafoutas, Loukas & Ryvkin, Dmitry & Sutter, Matthias, 2013. "Strive to be first and avoid being last: An experiment on relative performance incentives," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79885, Verein für Socialpolitik / German Economic Association.

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