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.:
- Baye, M.R. & Kovenock, D. & De Vries, C., 1992.
"The All-Pay Auction with Complete Information,"
8-92-1, Pennsylvania State - Department of Economics.
- Baye, M.R. & Kovenock, D. & De Varies, C.G., 1990. "The All-Pay Auction With Complete Information," Papers 9051, Tilburg - Center for Economic Research.
- 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. & 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.G., 1991. "The All-Pay Auction With Complete Information," Purdue University Economics Working Papers 1007, Purdue University, Department of Economics.
- Ron Siegel, 2009. "All-Pay Contests," Econometrica, Econometric Society, vol. 77(1), pages 71-92, 01.
- Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, May.
- Cohen, Chen & Kaplan, Todd & Sela, Aner, 2004.
"Optimal Rewards in Contests,"
CEPR Discussion Papers
4704, C.E.P.R. Discussion Papers.
- Kaplan, Todd, et al, 2002.
"All-Pay Auctions with Variable Rewards,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 50(4), pages 417-30, December.
- Yeon-Koo Che & Ian Gale, 2000.
"Optimal Design of Research Contests,"
Econometric Society World Congress 2000 Contributed Papers
1784, Econometric Society.
- Kaplan, T.R. & Luski, I. & Wettstein, D., 2000.
"Innovative Activity and Sunk Cost,"
2000-6, Tel Aviv.
- Oliver Hart & John Moore, 1985.
"Incomplete Contracts and Renegotiation,"
367, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
- 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.
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.