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Outsourcing in Contests

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless there are very few contestants and/or the ex-post bargaining strength of the contest winner is sufficiently low. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.

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Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 09/05.

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Length: 28 pages
Date of creation: 05 Apr 2005
Date of revision:
Handle: RePEc:hhs:bergec:2005_009
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Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway

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  1. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  2. Konrad, Kai A., 2005. "Silent Interests and All-Pay Auctions," Discussion Papers 2005/8, Free University Berlin, School of Business & Economics.
  3. Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November.
  4. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics.
  5. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  6. Meland, Frode, 2002. "Unions and Market Integration in Contests," Public Choice, Springer, vol. 112(3-4), pages 293-304, September.
  7. Rogerson, William P, 1989. "Profit Regulation of Defense Contractors and Prizes for Innovation," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1284-1305, December.
  8. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
  9. Stein, William E, 2002. "Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-36, December.
  10. Yeon-Koo Che & Ian Gale, 2000. "Optimal Design of Research Contests," Econometric Society World Congress 2000 Contributed Papers 1784, Econometric Society.
  11. Chen, Yongmin & Ishikawa, Jota & Yu, Zhihao, 2004. "Trade liberalization and strategic outsourcing," Journal of International Economics, Elsevier, vol. 63(2), pages 419-436, July.
  12. Amegashie, J Atsu, 1999. "The Design of Rent-Seeking Competitions: Committees, Preliminary and Final Contests," Public Choice, Springer, vol. 99(1-2), pages 63-76, April.
  13. Alexander, Barbara J, 1997. "Mechanisms for Rent Transfers: Subcontracting among Military Aircraft Manufacturers," Public Choice, Springer, vol. 91(3-4), pages 251-69, June.
  14. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
  15. Lommerud, Kjell Erik & Meland, Frode & Straume, Odd Rune, 2006. "Can deunionization lead to international outsourcing?
    [Führt der Rückzug der Gewerkschaften zur internationalen Auslagerung von Arbeitsplätzen?]
    ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-23, Social Science Research Center Berlin (WZB).
  16. Shy, Oz & Stenbacka, Rune, 2003. "Strategic outsourcing," Journal of Economic Behavior & Organization, Elsevier, vol. 50(2), pages 203-224, February.
  17. Szymanski, Stefan & Valletti, Tommaso, 2004. "First and Second Prizes in Imperfectly Discriminating Contests," CEPR Discussion Papers 4484, C.E.P.R. Discussion Papers.
  18. Morton I. Kamien & Lode Li & Dov Samet, 1989. "Bertrand Competition with Subcontracting," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 553-567, Winter.
  19. Konrad, Kai A., 2000. "Trade contests," Journal of International Economics, Elsevier, vol. 51(2), pages 317-334, August.
  20. Clark, Derek J. & Riis, Christian, 2000. "Allocation efficiency in a competitive bribery game," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 109-124, May.
  21. Gale, Ian L & Hausch, Donald B & Stegeman, Mark, 2000. "Sequential Procurement with Subcontracting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 989-1020, November.
  22. Amegashie, J Atsu, 2000. "Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December.
  23. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
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