Carrots and Sticks: Prizes and Punishments in Contests
University of Bonn - Chair of Economic Theory II; Centre for Economic Policy Research (CEPR)
Ben-Gurion University of the Negev - Department of Economics; Centre for Economic Policy Research (CEPR)
University of Toronto - Department of Economics
Economic Inquiry, Vol. 50, Issue 2, pp. 453-462, 2012
We study optimal contest design in situations where the designer can reward high performance agents with positive prizes and punish low performance agents with negative prizes. We link the optimal prize structure to the curvature of distribution of abilities in the population. In particular, we identify conditions under which, even if punishment is costly, punishing the bottom is more effective than rewarding the top in eliciting effort input. If punishment is costless, we study the optimal number of punishments in the contest.
Number of Pages in PDF File: 10
JEL Classification: D44, D82, J31, J41Accepted Paper Series
Date posted: April 19, 2012
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