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On the optimality of small research tournaments

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  • Dizdar, Deniz

Abstract

A central result in Fullerton and McAfee’s (1999) analysis of fixed-prize research tournaments shows that if firms’ heterogeneous marginal effort costs are publicly known and the procurer can charge non-discriminatory entry fees, restricting entry to the two most efficient firms is optimal under a (fairly restrictive) sufficient condition on the form of heterogeneity. This note provides a complementary result. I prove a sharp, worst-case bound (across all linear cost structures) for the ratio between the cost of procuring a given total effort from the optimal number of contestants and the corresponding cost for a tournament featuring only the two most efficient firms. The analysis confirms the attractiveness of the smallest possible tournament, with some notable exceptions.

Suggested Citation

  • Dizdar, Deniz, 2021. "On the optimality of small research tournaments," Mathematical Social Sciences, Elsevier, vol. 110(C), pages 19-22.
    • Handle: RePEc:eee:matsoc:v:110:y:2021:i:c:p:19-22
    DOI: 10.1016/j.mathsocsci.2021.01.002
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    References listed on IDEAS

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    1. 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 841-864, October.
    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. 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.
    4. Yeon-Koo Che & Ian Gale, 2003. "Optimal Design of Research Contests," American Economic Review, American Economic Association, vol. 93(3), pages 646-671, June.
    5. Richard L. Fullerton & Bruce G. Linster & Michael McKee & Stephen Slate, 2002. "Using Auctions To Reward Tournament Winners: Theory and Experimental Investigations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 62-84, Spring.
    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. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
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    Cited by:

    1. Eren Bilen & Deniz Dizdar & Chun‐Hui Miao, 2023. "Search less for a better price," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 622-646, May.

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    Keywords

    Innovation contest; Tournament;

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