Stochastic-Share Contests

14 Pages Posted: 25 Jul 2022

See all articles by Philip Brookins

Philip Brookins

University of South Carolina

Andrew Smyth

Marquette University - Department of Economics

Date Written: July 18, 2022

Abstract

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 both the excitement of the Winner-Take-All format and the security of the Proportional-Prize setting. Among the many applications of Stochastic-Share Contests, we illustrate their utility for contest experiments, "winner-take-all markets," patent policy, design competitions, and employee reward programs.

Keywords: contest, winner-take-all, proportional-prize, risk aversion, joy of winning

JEL Classification: C72, D72, C90, D40, D82

Suggested Citation

Brookins, Philip and Smyth, Andrew, Stochastic-Share Contests (July 18, 2022). Available at SSRN: https://ssrn.com/abstract=4161952 or http://dx.doi.org/10.2139/ssrn.4161952

Philip Brookins

University of South Carolina ( email )

Department of Economics
1014 Greene St
Columbia, SC 29208
United States
8037773603 (Phone)

HOME PAGE: http://philipbrookins.com

Andrew Smyth (Contact Author)

Marquette University - Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

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