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Optimal rewards in contests

Author

Listed:
  • Chen Cohen
  • Todd R. Kaplan
  • Aner Sela

Abstract

We study all-pay contests with effort-dependent rewards under incomplete information. A contestant's value to winning depends not only on his type but also on the effort-dependent reward chosen by the designer. We analyze which reward is optimal for the designer when his objective is either total effort or highest effort. We find that under certain conditions the optimal reward may either be negative or even decreasing in effort; however, we find no advantage to having multiple rewards. Copyright (c) 2008, RAND.

Suggested Citation

  • Chen Cohen & Todd R. Kaplan & Aner Sela, 2008. "Optimal rewards in contests," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 434-451.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:434-451
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.0741-6261.2008.00021.x
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    References listed on IDEAS

    as
    1. Kaplan, Todd, et al, 2002. "All-Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 417-430, December.
    2. 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.
    3. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-651, June.
    4. 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.
    5. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-294, March.
    6. 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.
    7. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
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    Citations

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    Cited by:

    1. Aner Sela, 2016. "Two Stage Contests With Effort-Dependent Rewards," Working Papers 1612, Ben-Gurion University of the Negev, Department of Economics.
    2. Aner Sela, 2008. "Sequential Two-Prize Contests," Working Papers 0803, Ben-Gurion University of the Negev, Department of Economics.
    3. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    4. repec:eee:jeborg:v:139:y:2017:i:c:p:32-48 is not listed on IDEAS
    5. Hoffmann, Magnus & Rota-Graziosi, Grégoire, 2012. "Endogenous timing in general rent-seeking and conflict models," Games and Economic Behavior, Elsevier, vol. 75(1), pages 168-184.
    6. Sela, Aner, 2016. "Two-stage contests with effort-dependent rewards," CEPR Discussion Papers 11113, C.E.P.R. Discussion Papers.
    7. Brueggemann, Julia & Meub, Lukas, 2015. "Experimental evidence on the effects of innovation contests," Center for European, Governance and Economic Development Research Discussion Papers 251, University of Goettingen, Department of Economics.
    8. Stefan Jönsson & Armin Schmutzler, 2013. "All-pay auctions: Implementation and optimality," ECON - Working Papers 108, Department of Economics - University of Zurich.
    9. BOS, Olivier & RANGER, Martin, 2009. "All-pay auctions with endogenous rewards," CORE Discussion Papers 2009059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Todd Kaplan & David Wettstein, 2015. "The optimal design of rewards in contests," Review of Economic Design, Springer;Society for Economic Design, vol. 19(4), pages 327-339, December.
    11. Aner Sela, 2012. "Sequential two-prize contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 383-395, October.
    12. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    13. Sela, Aner, 2008. "Sequential Two-Prize Contests," CEPR Discussion Papers 6769, C.E.P.R. Discussion Papers.
    14. Reut Megidish & Aner Sela, 2014. "Caps In Sequential Contests," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 608-617, April.
    15. Fu, Qiang & Lu, Jingfeng & Lu, Yuanzhu, 2012. "Incentivizing R&D: Prize or subsidies?," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 67-79.
    16. Ron Siegel, 2014. "Contests with productive effort," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(3), pages 515-523, August.
    17. Ghazala Azmat & Marc Möller, 2009. "Competition among contests," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 743-768.
    18. Olivier Bos & Martin Ranger, 2014. "All-Pay Auctions with Polynomial Rewards," Annals of Economics and Statistics, GENES, issue 115-116, pages 361-377.
    19. repec:eee:iepoli:v:39:y:2017:i:c:p:72-83 is not listed on IDEAS
    20. Gershkov, Alex & Li, Jianpei & Schweinzer, Paul, 2006. "Collective Production and Incentives," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 186, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    21. Serena, Marco, 2017. "Quality contests," European Journal of Political Economy, Elsevier, vol. 46(C), pages 15-25.
    22. Alex Gershkov & Jianpei Li & Paul Schweinzer, 2009. "Efficient tournaments within teams," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 103-119.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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