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All-pay auctions: Implementation and optimality

Author

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  • Stefan Jönsson
  • Armin Schmutzler

Abstract

This paper analyzes how all-pay auctions with endogenous prizes can be used to provide effort incentives. We show that wide classes of effort distributions can be implemented as equilibrium outcomes of such games. We also ask how all-pay auctions have to be structured so as to induce high expected highest efforts without generating excessive wasteful efforts of losers. All-pay auctions with endogenous prizes can do better than all-pay auctions with fixed prizes in this respect, in particular, when the prize function is approximately linear. We use the results to compare patents and prizes as innovation incentives, and to explore promotion incentives in organizations.

Suggested Citation

  • Stefan Jönsson & Armin Schmutzler, 2013. "All-pay auctions: Implementation and optimality," ECON - Working Papers 108, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:108
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    File URL: http://www.econ.uzh.ch/static/wp/econwp108.pdf
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    References listed on IDEAS

    as
    1. Chung, Tai-Yeong, 1996. "Rent-Seeking Contest When the Prize Increases with Aggregate Efforts," Public Choice, Springer, vol. 87(1-2), pages 55-66, April.
    2. Kaplan, Todd, et al, 2002. "All-Pay Auctions with Variable Rewards," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 417-430, December.
    3. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    4. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    5. Michael Baye & Dan Kovenock & Casper Vries, 2012. "Contests with rank-order spillovers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 315-350, October.
    6. Donja Darai & Dario Sacco & Armin Schmutzler, 2010. "Competition and innovation: an experimental investigation," Experimental Economics, Springer;Economic Science Association, vol. 13(4), pages 439-460, December.
    7. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-739, September.
    8. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
    9. Ron Siegel, 2010. "Asymmetric Contests with Conditional Investments," American Economic Review, American Economic Association, vol. 100(5), pages 2230-2260, December.
    10. Chen Cohen & Todd R. Kaplan & Aner Sela, 2008. "Optimal rewards in contests," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 434-451.
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    Citations

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    Cited by:

    1. David Perez Castrillo & David Wettstein, 2014. "Discrimination in a new model of contests with two-sided asymmetric information," Working Papers 1407, Ben-Gurion University of the Negev, Department of Economics.
    2. David Pérez-Castrillo & David Wettstein, 2012. "Innovation Contests," Working Papers 654, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    Contests; all-pay auctions; endogenous prizes; implementation;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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