Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results

Roman Sheremeta, William Masters and Timothy Cason

Working Papers from Chapman University, Economic Science Institute

Abstract: This study provides a unified theoretical and experimental framework in which to compare three canonical types of competition: 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 introduce random noise to reflect imperfect information, and collect independent measures of risk aversion, other-regarding preferences, and the utility of winning a contest. The main finding is that efforts are consistently higher with winner-take-all contests. The lottery contests have the same Nash equilibrium as proportional prizes, but induce contestants to choose higher efforts and receive lower, more unequal payoffs. This result may explain why contest designers who seek only to elicit effort offer lump-sum prizes, even though contestants would be better off with proportional rewards.

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)
Pages: 41 pages
Date: 2012
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth, nep-hrm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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http://www.chapman.edu/ESI/wp/Sheremeta-Winner-Take-All.pdf (application/pdf)

Related works:
Journal Article: Winner-take-all and proportional-prize contests: Theory and experimental results (2020)
Working Paper: Winner-Take-All and Proportional-Prize Contests: Theory and Experimental Results (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:12-04

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