Discussion Paper Details

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Title: Carrots and Sticks: Prizes and Punishments in Contests

Author(s): Benny Moldovanu, Aner Sela and Xianwen Shi

Publication Date: April 2008

Keyword(s): All-pay auctions, Contests, Order Statistics and Punishments

Programme Area(s): Industrial Organization

Abstract: We study optimal contest design in situations where the designer can reward high performance agents with positive prizes and punish low performance agents with negative prizes. We link the optimal prize structure to the curvature of distribution of abilities in the population. In particular, we identify conditions under which, even if punishment is costly, punishing the bottom is more effective than rewarding the top in eliciting effort input. If punishment is costless, we study the optimal number of punishments in the contest.

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Bibliographic Reference

Moldovanu, B, Sela, A and Shi, X. 2008. 'Carrots and Sticks: Prizes and Punishments in Contests'. London, Centre for Economic Policy Research.