All-Pay Auctions: Implementation and Optimality
45 Pages Posted: 31 Jan 2013
Date Written: January 1, 2013
This paper analyzes how all-pay auctions with endogenous prizes can be used to provide effort incentives. We show that wide classes of effort distributions can be implemented as equilibrium outcomes of such games. We also ask how all-pay auctions have to be structured so as to induce high expected highest efforts without generating excessive wasteful efforts of losers. All-pay auctions with endogenous prizes can do better than all-pay auctions with fixed prizes in this respect, in particular, when the prize function is approximately linear. We use the results to compare patents and prizes as innovation incentives, and to explore promotion incentives in organizations.
Keywords: Contests, all-pay auctions, endogenous prizes, implementation
JEL Classification: D44, D43, D02
Suggested Citation: Suggested Citation