Difference-form contests and the robustness of all-pay auctions

auctions

Strategically Equivalent Contests

Using a two-player Tullock-type contest, we show that intuitively and structurally different contests can be strategically equivalent. Strategically equivalent contests generate the same best response functions and, as a result, the same equilibrium efforts. However, strategically equivalent contests may yield different equilibrium payoffs. We propose a simple two-step procedure to identify strategically equivalent contests. Using this procedure, we identify contests that are strategically equivalent to the original Tullock contest, and provide new examples of strategically equivalent contests. Finally, we discuss possible contest design applications and avenues for future theoretical and empirical research

The Equivalence of Contests

We use a Tullock-type contest model to show that intuitively and structurally different contests can be strategically and revenue equivalent to each other. We consider a two-player contest, where outcome-contingent payoffs are linear functions of prizes, own effort, and the effort of the rival. We identify strategically equivalent contests that generate the same family of best response functions and, as a result, the same revenue. However, two strategically equivalent contests may yield different equilibrium payoffs. Finally, we discuss possible contest design applications and avenues for future theoretical and empirical research.rent-seeking, contest, spillover, equivalence, revenue equivalence, contest design

The efficient provision of public goods through non-distortionary tax contests

We use a simple balanced budget contest to collect taxes on a private good in order to ?nance a pure public good. We show that-with an appropriately chosen structure of winning probabilities-this contest can provide the public good efficiently and without distorting private consumption. We provide extensions to multiple public goods and private taxation sources, asymmetric preferences, and show the mechanism’s robustness across these settings

Designing contests between heterogeneous contestants: An experimental study of tie-breaks and bid-caps in all-pay auctions

A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the “discouragement effect.” Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer’s revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the iscouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning

Semi-targeted all-pay auctions: a partial exclusion principle

This paper studies the effects of a specific affirmative action policy in complete information all-pay auctions when players differ in ability. The contest organizer splits the overall prize of the competition into a targeted and an untargeted prize. The targeted prize is exclusively for disadvantaged (low-ability) agents and excludes advantaged agents partially from the overall prize. We consider a setting with one high-ability and two low-ability contestants and fully characterize equilibrium. Assuming that the contest organizer aims to maximize expected total effort, we show that (i) almost any targeted prize is preferable to a standard all-pay auction without targeted prize; (ii) the exclusion principle Baye et al. (1993) can be implemented by a wide range of sufficiently large targeted prizes; and (iii) partial exclusion by means of an appropriately chosen targeted prize benefits the organizer more than complete exclusion. We also discuss the robustness of our results in settings with more than three agents

Existence of a pure-strategy Bayesian Nash equilibrium in imperfectly discriminating contests

We consider a general class of imperfectly discriminating contests with privately informed players. We show that findings by Athey (2001) imply the existence of a Bayesian Nash equilibrium in monotone pure strategies

Entry into Winner-Take-All and Proportional-Prize Contests: An Experimental Study

This experiment compares the performance of two contest designs: a standard winnertake- all tournament with a single fixed prize, and a novel proportional-payment design in which that same prize is divided among contestants by their share of total achievement. We find that proportional prizes elicit more entry and more total achievement than the winner-take-all tournament. The proportional-prize contest performs better by limiting the degree to which heterogeneity among contestants discourages weaker entrants, without altering the performance of stronger entrants. These findings could inform the design of contests for technological and other improvements, which are widely used by governments and philanthropic donors to elicit more effort on targeted economic and technological development activities.performance pay, tournament, piece rate, tournament design, contest, experiments, risk aversion, feedback, gender

TULLOCK AND HIRSHLEIFER: A MEETING OF THE MINDS

We introduce the serial contest by building on the desirable properties of two prominent contest games. This family of contest games relies both on relative efforts (as Tullock's proposal) and on absolute effort differences (as difference-form contests). An additional desirable feature is that the serial contest is homogeneous of degree zero in contestant's efforts. The family is characterized by a parameter representing how sensitive the outcome is to contestants' efforts. It encompasses as polar cases the (fair) lottery and the (deterministic) all-pay auction. Equilibria have a close relationship to those of the (deterministic) all-pay auction and important properties of the latter hold for the serial contest, too.rent-seeking, (non-) deterministic contest, contest success function, all-pay auction, rent dissipation, exclusion principle, preemption effect, cap, campaign contributions.

EXPERIMENTAL MARKETS AND ENVIRONMENTAL POLICY

Experimental markets can be a useful tool to guide and evaluate environmental policy. This paper reviews four experiments to illustrate. Two institutional experiments are considered-Coasian bargaining with positive transaction costs, and a gaming experiment of dynamic choice in a conflict. Two valuation experiments are also discussed-the impact of sequential reduction mechanisms on the value of risk, and experimental auction markets to elicit the value of safer food.Environmental Economics and Policy,