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Relative Performance Prizes and Dynamic Incentives in Best-of-N Contests

Xiandeng Jiang ()
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Xiandeng Jiang: Southwestern University of Finance and Economics

Review of Industrial Organization, 2018, vol. 53, issue 3, 563-590

Abstract: Abstract This paper introduces a relative performance prize scheme to best-of-N contests. I develop a theoretical model of the best-of-N contest with intermediate prizes that are distributed based on the players’ relative performance. The model predicts that a relative performance prize scheme both increases the players’ level of effort in certain conditions and decreases the performance differential between the winner and the loser in the contest. Empirically, I investigate these theoretical predictions by employing a natural experiment in the group-stage matches of the FIVB (Fédération Internationale de Volleyball) World League and the FIVB World Grand Prix. The results indicate that the introduction of a relative performance prize scheme induces contest participants to intensify their efforts in certain conditions. However, this prize scheme may ultimately result in teams playing fewer sets in matches.

Keywords: Best-of-N contest; Relative performance; Intermediate prizes (search for similar items in EconPapers)
JEL-codes: C72 D72 J33 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:revind:v:53:y:2018:i:3:d:10.1007_s11151-018-9646-8