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Enhancing Effort Supply With Prize‐Augmenting Entry Fees: Theory And Experiments

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  • Robert G. Hammond
  • Bin Liu
  • Jingfeng Lu
  • Yohanes E. Riyanto

Abstract

Entry fees are widely observed in contests. We study the effect of a prize‐augmenting entry fee on expected total effort in an all‐pay auction setting where the contestants' abilities are private information. An entry fee reduces equilibrium entry but can enhance the entrants' effort supply. Our theoretical model demonstrates that the optimal entry fee is strictly positive and finite. In a laboratory experiment, we empirically test the effect of entry fees on effort supply. Our results provide strong support for the notion that a principal can elicit higher effort using an appropriately set entry fee to augment the prize purse.

Suggested Citation

  • Robert G. Hammond & Bin Liu & Jingfeng Lu & Yohanes E. Riyanto, 2019. "Enhancing Effort Supply With Prize‐Augmenting Entry Fees: Theory And Experiments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(3), pages 1063-1096, August.
  • Handle: RePEc:wly:iecrev:v:60:y:2019:i:3:p:1063-1096
    DOI: 10.1111/iere.12379
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    Cited by:

    1. 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.
    2. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Entry in group contests," Working Papers wp2020_02_01, Department of Economics, Florida State University.

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