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:||05 Dec 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Cohen, Chen & Kaplan, Todd & Sela, Aner, 2004.
"Optimal Rewards in Contests,"
CEPR Discussion Papers
4704, C.E.P.R. Discussion Papers.
- Jörg Franke & Christian Kanzow & Wolfgang Leininger & Alexandra Väth, 2009.
"Effort Maximization in Asymmetric N-person Contest Games,"
Ruhr Economic Papers
0130, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
- Jörg Franke & Christian Kanzow & Wolfgang Leininger & Alexandra Väth, 2009. "Effort Maximization in Asymmetric N-Person Contest Games," CESifo Working Paper Series 2744, CESifo Group Munich.
- Yeon-Koo Che & Ian Gale, 2000.
"Optimal Design of Research Contests,"
Econometric Society World Congress 2000 Contributed Papers
1784, Econometric Society.
- Todd Kaplan, 2001.
"All-Pay Auctions with Variable Rewards,"
0109, Exeter University, Department of Economics.
- Kaplan, T.R. & Luski, I. & Wettstein, D., 2000.
"Innovative Activity and Sunk Cost,"
2000-6, Tel Aviv.
- Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27397. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.