The Optimal Design of Rewards in Contests
Using contests to generate innovation has and is widely used. Such contests often involve offering a prize that depends upon the accomplishment (effort). Using an all-pay auction as a model of a contest, we determine the optimal reward for inducing innovation. In a symmetric environment, we find that the reward should be set to c(x)/c′(x) where c is the cost of producing an innovation of level x. In an asymmetric environment with two firms, we find that it is optimal to set different rewards for each firm. There are cases where this can be replicated by a single reward that depends upon accomplishments of both contestants.
|Date of creation:|
|Date of revision:||22 Nov 2010|
|Contact details of provider:|| Postal: 199 Aba Khoushy Ave., Mount Carmel, Haifa, Israel, 3498838|
Web page: http://hevra.haifa.ac.il/econ/index.php/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hart, Oliver D & Moore, John, 1988.
"Incomplete Contracts and Renegotiation,"
Econometric Society, vol. 56(4), pages 755-85, July.
- Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
- Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
- Baye, M.R. & Kovenock, D. & De Varies, C.G., 1990.
"The All-Pay Auction With Complete Information,"
9051, Tilburg - Center for Economic Research.
- Baye, M. & Kovenock, D. & de Vries, C., 1990. "The All-Pay Auction with Complete Information," Discussion Paper 1990-51, Tilburg University, Center for Economic Research.
- Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
- Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "The All-Pay Auction With Complete Information," Purdue University Economics Working Papers 1007, Purdue University, Department of Economics.
- Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, December.
- Todd Kaplan, 2001.
"All-Pay Auctions with Variable Rewards,"
0109, Exeter University, Department of Economics.
- Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
- Kaplan, T.R. & Luski, I. & Wettstein, D., 2000.
"Innovative Activity and Sunk Cost,"
0006, Exeter University, Department of Economics.
- Ron Siegel, 2009. "All-Pay Contests," Econometrica, Econometric Society, vol. 77(1), pages 71-92, 01.
- Chen Cohen & Todd R. Kaplan & Aner Sela, 2008.
"Optimal rewards in contests,"
RAND Journal of Economics,
RAND Corporation, vol. 39(2), pages 434-451.
- Yeon-Koo Che & Ian Gale, 2000.
"Optimal Design of Research Contests,"
Econometric Society World Congress 2000 Contributed Papers
1784, Econometric Society.
- McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
- Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, vol. 100(5), pages 2230-60, December.
- 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.
When requesting a correction, please mention this item's handle: RePEc:haf:huedwp:wp201006. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Rubinchik)
If references are entirely missing, you can add them using this form.