DP6770 Carrots and Sticks: Prizes and Punishments in Contests

Author(s):	Benny Moldovanu, Aner Sela, Xianwen Shi
Publication Date:	April 2008
Keyword(s):	All-pay auctions, Contests, Order Statistics, Punishments
JEL(s):	D44, D82, J31, J41
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=6770

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.