Fatter or fitter? On rewarding and training in a contest

Derek J. Clark and Tore Nilssen ()

Economic Inquiry, 2022, vol. 60, issue 1, 101-120

Abstract: Competition between heterogeneous participants leads to low‐effort provision in contests. A principal can divide her fixed budget between skill‐enhancing training and the contest prize. Training can reduce heterogeneity, increasing effort. It also reduces the contest prize, making effort fall. We set up an incomplete‐information contest with heterogeneous players and show how this trade‐off is related to the size of the budget of an effort‐maximizing principal. A selection problem arises implying a cost associated with a win by the inferior player. The principal has a larger incentive to train the laggard, reducing the prize on offer.

Date: 2022
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https://doi.org/10.1111/ecin.13021

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