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Endogenous contest success functions: a mechanism design approach

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  • Leonid Polishchuk
  • Alexander Tonis

Abstract

We describe optimal contest success functions (CSF) which maximize expected revenues of an administrator who allocates under informational asymmetry a source of rent among competing bidders. It is shown that in the case of independent private values rent administrator’s optimal mechanism can always be implemented via some CSFs as posited by Tullock. Optimal endogenous CSFs have properties which are often assumed a priori as plausible features of rent-seeking contests; the paper therefore validates such assumptions for a broad class of contests. Various extensions or optimal CSFs are analyzed. Copyright Springer-Verlag 2013

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  • Leonid Polishchuk & Alexander Tonis, 2013. "Endogenous contest success functions: a mechanism design approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 271-297, January.
    • Handle: RePEc:spr:joecth:v:52:y:2013:i:1:p:271-297
    DOI: 10.1007/s00199-011-0622-x
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    Cited by:

    1. Luis C. Corchón & Marco Serena, 2016. "Properties of Contests," Working Papers tax-mpg-rps-2018-10, Max Planck Institute for Tax Law and Public Finance.
    2. Amegashie, J. Atsu, 2012. "A nested contest: Tullock meets the All-Pay Auction," MPRA Paper 41654, University Library of Munich, Germany, revised 03 Sep 2012.
    3. Sanchez-Pages, Santiago & Cubel, Maria, 2015. "An axiomatization of difference-form contest success functions," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-49, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Subhasish Chowdhury & Roman Sheremeta, 2015. "Strategically equivalent contests," Theory and Decision, Springer, vol. 78(4), pages 587-601, April.
    5. Jean-François Mercier, 2018. "Selecting contestants for a rent-seeking contest," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(3), pages 927-947, September.
    6. Thomas Giebe & Paul Schweinzer, 2015. "Probabilistic procurement auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 19(1), pages 25-46, March.
    7. Sakshi Gupta & Ram Singh, 2018. "On Existence and Properties of Pure-strategy Equilibria under Contests," Working papers 288, Centre for Development Economics, Delhi School of Economics.
    8. Liu, Bin & Lu, Jingfeng & Wang, Ruqu & Zhang, Jun, 2018. "Optimal prize allocation in contests: The role of negative prizes," Journal of Economic Theory, Elsevier, vol. 175(C), pages 291-317.
    9. Cubel, María & Sanchez-Pages, Santiago, 2016. "An axiomatization of difference-form contest success functions," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 92-105.
    10. Giebe, Thomas, 2014. "Innovation contests with entry auction," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 165-176.
    11. María Cubel & Santiago Sanchez-Pages, 2014. "Difference-form group contests," Working Papers 2014/6, Institut d'Economia de Barcelona (IEB).
    12. Olszewski, Wojciech & Siegel, Ron, 2020. "Performance-maximizing large contests," Theoretical Economics, Econometric Society, vol. 15(1), January.
    13. Jean-Daniel Guigou & Bruno Lovat & Marc Boissaux, 2013. "Asymmetric contests with risky rents," DEM Discussion Paper Series 13-9, Department of Economics at the University of Luxembourg.
    14. Liu, Bin & Lu, Jingfeng, 2023. "Optimal orchestration of rewards and punishments in rank-order contests," Journal of Economic Theory, Elsevier, vol. 208(C).
    15. Mengxi Zhang, 2023. "Optimal Contests with Incomplete Information and Convex Effort Costs," CRC TR 224 Discussion Paper Series crctr224_2023_156v2, University of Bonn and University of Mannheim, Germany.
    16. Thomas Giebe & Paul Schweinzer, 2012. "Fuzzy Price-Quality Ratio Procurement under Incomplete Information," Discussion Papers 12/26, Department of Economics, University of York.
    17. Liu, Xuyuan & Lu, Jingfeng, 2017. "Optimal prize-rationing strategy in all-pay contests with incomplete information," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 57-90.
    18. Jean-Daniel Guigou & Bruno Lovat & Marc Boissaux, 2013. "Asymmetric contests with risky rents," LSF Research Working Paper Series 13-9, Luxembourg School of Finance, University of Luxembourg.
    19. Liu, Bin & Lu, Jingfeng, 2019. "The optimal allocation of prizes in contests with costly entry," International Journal of Industrial Organization, Elsevier, vol. 66(C), pages 137-161.
    20. María Cubel & Santiago Sanchez-Pages, 2014. "Difference-form group contests," Working Papers 2014/6, Institut d'Economia de Barcelona (IEB).

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    More about this item

    Keywords

    Rent seeking; Contest success functions; Asymmetric information; Bayesian mechanism design; D72; D82; C73;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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