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Optimal Prizes in Dynamic Elimination Contests: An Experimental Analysis

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  • Stracke, Rudi

    ()

  • Höchtl, Wolfgang

    ()

  • Kerschbamer, Rudolf

    ()

  • Sunde, Uwe

    ()

Abstract

This paper investigates the effects of different prize structures on the effort choices of participants in two-stage elimination contests. A format with a single prize is shown to maximize totaleffort over both stages, but induces low effort in stage 1 and high effort in stage 2. By contrast, a format that allocates the same total amount to multiple prizes in such a way that the predicted effort remains constant across stages yields lower total effort provision. Experimental evidence suggests that (i) total effort is higher in the single prize format, but only for risk-neutral subjects; (ii) effort is constant across stages in the format with multiple prizes, independently of risk-attitudes; and (iii) the runner-up prize in the multiple prize format increases stage-1 and decreases stage-2 efforts in line with the theoretical prediction.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1208.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1208.

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Length: 30 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:usg:econwp:2012:08

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Keywords: Dynamic Contests; Multiple Prizes; Experiment; Over-provision;

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Cited by:
  1. Tanja Hörtnagl & Rudolf Kerschbamer & Rudi Stracke & Uwe Sunde, 2013. "Heterogeneity in Rent-Seeking Contests with Multiple Stages: Theory and Experimental Evidence," Working Papers 2013-29, Faculty of Economics and Statistics, University of Innsbruck.

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