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Optimal Prizes in Dynamic Elimination Contests: An Experimental Analysis

  • Stracke, Rudi

    ()

  • Höchtl, Wolfgang

    ()

  • Kerschbamer, Rudolf

    ()

  • Sunde, Uwe

    ()

This paper investigates the effects of different prize structures on the effort choices of participants in two-stage elimination contests. A format with a single prize is shown to maximize totaleffort over both stages, but induces low effort in stage 1 and high effort in stage 2. By contrast, a format that allocates the same total amount to multiple prizes in such a way that the predicted effort remains constant across stages yields lower total effort provision. Experimental evidence suggests that (i) total effort is higher in the single prize format, but only for risk-neutral subjects; (ii) effort is constant across stages in the format with multiple prizes, independently of risk-attitudes; and (iii) the runner-up prize in the multiple prize format increases stage-1 and decreases stage-2 efforts in line with the theoretical prediction.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1208.pdf
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Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1208.

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Length: 30 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:usg:econwp:2012:08
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  1. Qiang Fu & Jingfeng Lu, 2012. "The optimal multi-stage contest," Economic Theory, Springer, vol. 51(2), pages 351-382, October.
  2. Roman M. Sheremeta, 2009. "Contest Design: An Experimental Investigation," Working Papers 09-05, Chapman University, Economic Science Institute.
  3. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe, 2010. "Are risk aversion and impatience related to cognitive ability?," Munich Reprints in Economics 20063, University of Munich, Department of Economics.
  4. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, March.
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  8. Sheremeta, Roman, 2009. "Experimental Comparison of Multi-Stage and One-Stage Contests," MPRA Paper 49884, University Library of Munich, Germany.
  9. Steffen Altmann & Armin Falk & Matthias Wibral, 2012. "Promotions and Incentives: The Case of Multistage Elimination Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 149 - 174.
  10. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  11. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  12. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  13. Dana Sisak, 2009. "Multiple-Prize Contests - The Optimal Allocation Of Prizes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 82-114, 02.
  14. Gneezy, Uri & Smorodinsky, Rann, 2006. "All-pay auctions--an experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 255-275, October.
  15. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  16. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
  17. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  18. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  19. Christine Harbring & Gabriele K. Lünser, 2008. "On the Competition of Asymmetric Agents," German Economic Review, Verein für Socialpolitik, vol. 9, pages 373-395, 08.
  20. Alexander Matros, 2006. "Elimination Tournaments where Players Have Fixed Resources," Working Papers 205, University of Pittsburgh, Department of Economics, revised Jan 2006.
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