J. Atsu Amegashie
No 7110, CESifo Working Paper Series from CESifo Group Munich
Quality and quantity are very common features of production processes. People care about these two features and they tend to be connected. I consider a contest in which the quantity and quality of output are rewarded. The output in the quality contest plays a dual role. It counts in the quality contest but it is also converted into quantity-equivalent output to obtain total output in the quantity contest. This latter feature implies that the two contests are interlinked. I find that when the unit cost of producing quality is sufficiently high, then treating quality and quantity as the same has a disincentive effect on the production of quality. In contrast, when the unit cost of producing quality is sufficiently low, treating quality and quantity as the same has no disincentive effect on the production of quality. I also find an equilibrium in which no one exerts effort in the quantity contest. When there is a binding budget constraint on effort, I find that effort in the quantity contest is smaller relative to the unconstrained case but effort in the quality contest may remain unchanged.
Keywords: Bayesian Nash equilibrium; contests; quality; quantity (search for similar items in EconPapers)
JEL-codes: D72 (search for similar items in EconPapers)
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