The Cooperative Consequences of Contests

Abstract

Although contests are recognized theoretically as a highly effective method of motivation, the competitive nature of contests may generate unintended negative effects on social interactions in more general settings beyond contests. Using a laboratory experiment of real effort tasks with treatments varying by compensation schemes (all-pay auction contest, Tullock contest, proportional prize contest, and piece rate payment scheme), we test the relative effect of contest formats on cooperation in social dilemma games. In comparison to a hypothesized ranking of compensation schemes based on the correspondence between effort exerted and reward received (‘Effort Correspondence’), our results provide relatively stronger support for an alternative hypothesis that cooperative behavior after a competition is tied to the potential for obtaining ‘fair’ payoff outcomes within the contest (‘Chance for Fair Division’). Our random re-matching experimental design ensures that our findings do not result from subjects’ rivalry towards specific competitors, but rather represents a more fundamental shift in prosocial attitude. The results have managerial consequences for structuring incentives in the workplace when a combination of competition and cooperation is necessary among workers.

Keywords: contests, compensation schemes, pro-social behavior, cooperation

JEL Classification: C91, D90, J33, M52