Munich Personal RePEc Archive

Efficient Contests

Riis, Christian (2008): Efficient Contests.

[img]
Preview
PDF
MPRA_paper_10906.pdf

Download (164kB) | Preview

Abstract

In their seminal contribution Lazear and Rosen (1981) show that wages based upon rank induce the same e¢ cient e¤ort as incentive-based reward schemes. They also show that this equivalence result is not robust towards heterogeneity in worker ability, as long as ability is private information, as it is not possible to structure contests to simultaneously satisfy self-selection constraints and first best incentives. This paper demonstrates that efficiency is achievable by a simple modification of the prize scheme in a mixed (heterogenous) contest. In the L&R contest, the winner's prize as well as the loser's prize are fixed in advance. In this paper I demonstrate that efficiency is restored by a modification of contest design, in which contestants choose from a menu of prizes.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.