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All-Pay Auctions: Implementation and Optimality

  • Jönsson, Stefan
  • Schmutzler, Armin

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9323.

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Date of creation: Jan 2013
Date of revision:
Handle: RePEc:cpr:ceprdp:9323
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  1. 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.
  2. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-39, September.
  3. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
  4. Dario Sacco & Armin Schmutzler, 2008. "Competition and Innovation: An Experimental Investigation," SOI - Working Papers 0807, Socioeconomic Institute - University of Zurich.
  5. Michael Baye & Dan Kovenock & Casper Vries, 2012. "Contests with rank-order spillovers," Economic Theory, Springer, vol. 51(2), pages 315-350, October.
  6. Todd Kaplan, 2001. "All-Pay Auctions with Variable Rewards," Discussion Papers 0109, Exeter University, Department of Economics.
  7. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, July.
  8. Chen Cohen & Todd R. Kaplan & Aner Sela, 2008. "Optimal rewards in contests," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 434-451.
  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.
  10. Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, vol. 100(5), pages 2230-60, December.
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