Optimal prizes in dynamic elimination contests: Theory and experimental evidence

Rudi Stracke, Wolfgang Höchtl (), Rudolf Kerschbamer and Uwe Sunde

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

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)
Pages: 28
Date: 2014-03
New Economics Papers: this item is included in nep-exp, nep-ger and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Journal Article: Optimal prizes in dynamic elimination contests: Theory and experimental evidence (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2014-08

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