14 Pages Posted: 25 Jul 2022 Last revised: 23 Sep 2022
Date Written: September 22, 2022
This paper proposes the Stochastic-Share Contest, a novel contest format that combines the Winner-Take-All Contest and the Proportional-Prize Contest, with the former nesting the latter two as special cases. Motivated by the experimental contest literature, we include risk aversion and a "joy of winning" in our model and show that Stochastic-Share Contests induce optimal investment when both are present. Intuitively, the Stochastic-Share format achieves this result by harnessing the excitement of the Winner-Take-All format and the security of the Proportional-Prize setting.
Keywords: contest, winner-take-all, proportional-prize, risk aversion, joy of winning
JEL Classification: C72, D72, C90, D40, D82
Suggested Citation: Suggested Citation