Turning Up the Heat: The Demoralizing Effect of Competition in Contests
65 Pages Posted: 30 Nov 2017
Date Written: November 22, 2017
We demonstrate, in the standard, symmetric complete-information all-pay contest framework, that, whenever marginal effort costs are increasing, increasing contest competitiveness demoralizes contestants, thereby reducing the mean and increasing the riskiness of output. This demoralization effect imposes testable restrictions on the mean and variability of output which we verify using extant experimental and field data. These results have significant implications: Although often criticized as evidence of laxity or cronyism, muting competition (e.g., adopting softer grading curves or less high-powered promotion systems) both reduces inequality and increases expected output. Reducing class size, simply by reducing classroom competition, improves student performance.
Keywords: all-pay contests, risk-taking, contest structures
JEL Classification: C72, D44, D72, D82, J31
Suggested Citation: Suggested Citation