Optimal prizes in dynamic elimination contests: Theory and experimental evidence

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This paper investigates the implications of different prize structures on effort provision in dynamic (two-stage) elimination contests. Theoretical results show that, for risk-neutral participants, a structure with a single prize for the winner of the contest maximizes total effort, while a structure with two appropriately chosen prizes (a runner-up prize and a final prize) ensures incentive maintenance across stages. In contrast, a structure with two prizes may dominate a winner-takes-all contest in both dimensions if participants are risk-averse. Evidence from laboratory experiments is largely consistent with these predictions, suggesting that contest design should account for risk attitudes of participants.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers in Economics and Statistics ; No. 2014-08

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Compensation Packages; Payment Methods
• Subject: Dynamic Contests ; Multiple Prizes ; Risk Aversion ; Experiment ; Over-provision

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Stracke, Rudi ; Höchtl, Wolfgang ; Kerschbamer, Rudolf ; Sunde, Uwe
• Event: Veröffentlichung
• (who): University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon)
• (where): Innsbruck
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/101100