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Winner-take-all and proportional-prize contests: Theory and experimental results

Timothy Cason (), William Masters () and Roman M. Sheremeta

Journal of Economic Behavior & Organization, 2020, vol. 175, issue C, 314-327

Abstract: This study provides a unified framework to compare three canonical types of contests: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. We derive equilibria and observe outcomes from each contest in a laboratory experiment. Equilibrium and observed efforts are highest in winner-take-all contests. Lotteries and proportional-prize contests have the same Nash equilibrium, but empirically, lotteries induce higher efforts and lower, more unequal payoffs. Behavioral deviations from theoretical benchmarks in different contests are caused by the same underlying attributes, such as risk-aversion and the utility of winning. Finally, we find that subjects exhibit consistent behavior across different types of contests, with subjects exerting higher effort in one contest also exerting higher effort in another contest.

Keywords: Contests; Rent-seeking; Lotteries; Incentives in experiments; Risk aversion (search for similar items in EconPapers)
JEL-codes: C72 D72 D74 J33 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results (2018) Downloads
Working Paper: Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:175:y:2020:i:c:p:314-327

DOI: 10.1016/j.jebo.2018.01.023

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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