Lotteries vs. All-Pay Auctions in Fair and Biased Contests

21 Pages Posted: 15 Dec 2012

See all articles by Gil S. Epstein

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Ayala Mealem

affiliation not provided to SSRN

Shmuel Nitzan

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

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Abstract

The form of contests for a single fixed prize can be determined by a designer who maximizes the contestants' efforts. This paper establishes that, under common knowledge of the two asymmetric contestants' prize valuations, a fair Tullock-type endogenously determined lottery is always superior to an all-pay-auction; it yields larger expected efforts (revenues) for the contest designer. If the contest can be unfair (structural discrimination is allowed), then the designer's payoff under the optimal lottery is equal to his expected payoff under the optimal all-pay auction.

Keywords: contest design, efforts (revenue) maximization, discrimination, endogenous lottery, all-pay auction

JEL Classification: D70, D71, D72

Suggested Citation

Epstein, Gil S. and Mealem, Ayala and Nitzan, Shmuel, Lotteries vs. All-Pay Auctions in Fair and Biased Contests. IZA Discussion Paper No. 7032. Available at SSRN: https://ssrn.com/abstract=2189770

Gil S. Epstein (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
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HOME PAGE: http://faculty.biu.ac.il/~epsteig/

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Ayala Mealem

affiliation not provided to SSRN

Shmuel Nitzan

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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