Optimal prizes in dynamic elimination contests: Theory and experimental evidence

Rudi Stracke, Wolfgang Höchtl, Rudolf Kerschbamer and Uwe Sunde

Journal of Economic Behavior & Organization, 2014, vol. 102, issue C, 43-58

Abstract: 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.

Keywords: Dynamic contests; Multiple prizes; Risk aversion; Experiment; Over-provision (search for similar items in EconPapers)
JEL-codes: C72 D72 J33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:102:y:2014:i:c:p:43-58

DOI: 10.1016/j.jebo.2014.02.018

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