Abstract

http://ssrn.com/abstract=1992334
 


 



Equity and Effectiveness of Optimal Taxation in Contests Under an All-Pay Auction


Yosef Mealem


Netanya Academic College

Shmuel Nitzan


Bar-Ilan University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

January 26, 2012

CESifo Working Paper Series No. 3712

Abstract:     
The means of contest design may include differential taxation of the prize. This paper establishes that, given a revenue-maximizing contest designer who faces a balanced-budget constraint, the optimal taxation scheme corresponding to an all-pay auction is appealing in two senses. First, it ensures exceptional equitable final prize valuations. Second, it is effective; it yields total contestants’ efforts that are larger than those obtained under almost any Tullock-type lottery. Furthermore, when a budget surplus is allowed, the superiority of optimal taxation under the APA is preserved in terms of equity and effectiveness relative to optimal taxation under any contest success function.

Number of Pages in PDF File: 34

Keywords: contest design, revenue maximization, balanced-budget constraint, budget surplus, optimal differential taxation, endogenous stakes, all-pay auction, lottery

JEL Classification: D700, D720, D740, D780

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Date posted: January 26, 2012  

Suggested Citation

Mealem, Yosef and Nitzan, Shmuel, Equity and Effectiveness of Optimal Taxation in Contests Under an All-Pay Auction (January 26, 2012). CESifo Working Paper Series No. 3712. Available at SSRN: http://ssrn.com/abstract=1992334

Contact Information

Yosef Mealem
Netanya Academic College
1 University St
Netanya 42100, 4223587
Israel
Shmuel Nitzan (Contact Author)
Bar-Ilan University - Department of Economics ( email )
Ramat-Gan, 52900
Israel
+972.3.531.8930 (Phone)
+972.3.535.3180 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
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