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All-pay auctions: Implementation and optimality

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  • Stefan Jönsson
  • Armin Schmutzler

Abstract

This paper analyzes how all-pay auctions with endogenous prizes can be used to provide effort incentives. We show that wide classes of effort distributions can be implemented as equilibrium outcomes of such games. We also ask how all-pay auctions have to be structured so as to induce high expected highest efforts without generating excessive wasteful efforts of losers. All-pay auctions with endogenous prizes can do better than all-pay auctions with fixed prizes in this respect, in particular, when the prize function is approximately linear. We use the results to compare patents and prizes as innovation incentives, and to explore promotion incentives in organizations.

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Bibliographic Info

Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 108.

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Date of creation: Jan 2013
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Handle: RePEc:zur:econwp:108

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Keywords: Contests; all-pay auctions; endogenous prizes; implementation;

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References

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  1. Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, vol. 100(5), pages 2230-60, December.
  2. Baye, Michael R. & Kovenock, Dan & Vries, Casper G. de, 2009. "Contests with rank-order spillovers," Discussion Papers, Research Unit: Market Processes and Governance SP II 2009-09, Social Science Research Center Berlin (WZB).
  3. Dario Sacco & Armin Schmutzler, 2008. "Competition and Innovation: An Experimental Investigation," SOI - Working Papers 0807, Socioeconomic Institute - University of Zurich.
  4. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, September.
  5. Chen Cohen & Todd R. Kaplan & Aner Sela, 2008. "Optimal rewards in contests," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 434-451.
  6. Kaplan, T.R. & Luski, I. & Wettstein, D., 2000. "Innovative Activity and Sunk Cost," Papers 2000-6, Tel Aviv.
  7. 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.
  8. Todd Kaplan, 2001. "All-Pay Auctions with Variable Rewards," Discussion Papers 0109, Exeter University, Department of Economics.
  9. Chung, Tai-Yeong, 1996. " Rent-Seeking Contest When the Prize Increases with Aggregate Efforts," Public Choice, Springer, vol. 87(1-2), pages 55-66, April.
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Cited by:
  1. David Pérez-Castrillo & David Wettstein, 2014. "Innovation Contests," CESifo Working Paper Series 4712, CESifo Group Munich.

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