Gaining Advantage by Winning Contests

Clark, Derek J.; Nilssen, Tore; Sand, Jan Yngve

doi:10.2139/ssrn.3155251

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Gaining Advantage by Winning Contests

Review of Economic Design, Forthcoming

18 Pages Posted: 19 Apr 2018 Last revised: 8 Apr 2020

See all articles by Derek J. Clark

Tore Nilssen

University of Oslo - Department of Economics

Jan Yngve Sand

University of Tromso - Department of Economics and Management, NFH

Date Written: February 27, 2020

Abstract

We consider a principal who faces many identical competitors, and who can distribute a prize fund over two consecutive contests. The winner of contest one gains an advantage in contest two where his effort is more productive than all rivals. We identify a tipping point for the productivity parameter, below which it is optimal for an effort-maximizing principal to place the whole prize in the second contest. Above this level, a single symmetric contest is preferred. The institution chosen depends inextricably upon the number of competitors and their valuation of future gains and costs. We identify the optimal setting of the productivity parameter, showing that introducing asymmetry can increase total efforts by as much as one quarter compared to a single symmetric contest.

Keywords: Contest, Win Advantage, Effort Incentives, Budget Division

JEL Classification: D74, D72

Suggested Citation: Suggested Citation

Clark, Derek J. and Nilssen, Tore and Sand, Jan Yngve, Gaining Advantage by Winning Contests (February 27, 2020). Review of Economic Design, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3155251 or http://dx.doi.org/10.2139/ssrn.3155251