cheating in contests i introduction competition to win the rewards attendant to ranking first in a contest motivates effort or performance by agents in all manner of tasks of course competition is also often valued for its own sake as well as for eliciting output from the contestants as evidenced by the popularity of activities as diverse as sports poker tournaments singing contests and the plethora of reality television programs featuring a contest to be the last contestant standing at the end of the season virtually every contest is characterized by rules sometimes implicit regarding acceptable and unacceptable behavior executives within a firm compete for promotion based on their performance but accounting fraud violation of government regulations or simply unprofessional or unethical business conduct unacceptable to the firm may disqualify an individual athletes may cheat by using performance enhancing drugs or banned equipment e g a corked baseball bat firms in a rent seeking contest may go beyond legal forms of buying political influence lobbying to unacceptable bribery wherever competition motivates a desirable activity or productive effort it may also motivate undesirable and therefore prohibited behavior that is cheating that the organizer of the contest must attempt to police if enforcement is sufficiently costly and imperfect cheating will play a role in this article we model cheating behavior in a symmetric rank order tournament contest we ask how the degree of cheating responds to the parameters of the tournament e g the payoff spread the distribution of the random component of output the probability of being caught cheating and the number of contestants and we identify how particular aspects of the design of contests affect cheating since the pioneering work of lazear and rosen 1981 nalebuff and stiglitz 1983 o keeffe viscusi and zeckhauser 1984 and others a large body of literature has modeled the incentives of agents in contests or rank order tournaments the distinguishing features of these models are that contestants are compensated based on the rank of their output compared with others rather than the level of output compensation levels or prizes are set in advance and output or rank is determined by a combination of costly effort and random noise the somewhat distinct literature on all pay auctions differs in that no random component contributes to the outcome and therefore equilibrium behavior may be characterized by mixed strategies see e g baye kovenock and de vries 1996 baye and hoppe 2003 discuss the strategic equivalence of rent seeking innovation and patent race games which are all essentially contests in which each player expends resources in an attempt to win a prize however to our knowledge there have been only limited efforts discussed below to model contestants incentives to cheat in models of contests in our model cheating is deterred through a random audit or inspection process cheating increases a contestant s output but the more a contestant cheats the more likely his cheating will be detected in the event an audit occurs many of the results of our model are quite intuitive the extent of cheating decreases as the probability of detection grows the degree of the randomness increases or the penalty if caught cheating increases however several results are surprising we find that although increasing monitoring intensity drives down the level of cheating it may decrease productive effort in the contest this occurs because effort falls if it becomes more likely that the effort will not determine the outcome and when monitoring is increased from a low level this increases the probability that the outcome of the contest is determined by disqualification we find that the level of cheating is reduced when a contestant can win by default that is if the discovery of cheating on the part of the contestant who finished first results in the next highest ranking contestant winning by default the incentive to cheat is weaker than if no prize is awarded when the top ranked contestant is found to have cheated

the strategic equivalence of rent seeking innovation and patent race games abstract we establish the strategic equivalence of a variety of rent seeking contests innovation tournaments and patent race games the results allow us to disentangle negative and positive externalities and to apply theorems and results intended for rent seeking games to other games and vice versa we conclude with several examples that highlight the practical utility of our results

a theory of strategic voting in runoff elections abstract this paper analyzes the properties of runoff electoral systems when voters are strategic a model of three candidate runoff elections is presented and two new features are included the risk of upset victory in the second round is endogenous and many types of runoff systems are considered three main results emerge first runoff elections produce equilibria in which only two candidates receive a positive fraction of the votes second a sincere voting equilibrium does not always exist finally runoff systems with a threshold below 50 percent produce an ortega effect that may lead to the systematic victory of the condorcet loser jel c72 d72

a designer s choice between single prize and parallel tournaments in this article i theoretically and experimentally compare a designer s profits from two tournament designs the first design is a standard winner take all tournament with a single prize the second design features two winner take all parallel tournaments with different prizes where individuals choose which tournament to enter before competing i develop a simple model that illustrates how the relative performances of these designs change as contestants abilities differ the theoretical model shows that the designer s profit is higher lower in the parallel tournament when contestants abilities differ greatly are similar i complement these findings with experimental evidence the experiments show that the parallel tournament is more profitable under high heterogeneity whereas under low heterogeneity the designer is better off with the single prize tournament furthermore high ability agents under participate and low ability agents over participate in the high prize tournament relative to the theoretical prediction jel c72 d82 j33 m51 m52

international pollution control cooperative versus noncooperative strategies abstract international pollution control involving two neighboring countries is modeled as a simple two player dynamic game each country produces a good that is consumed by domestic households production of each consumption good results in emissions of pollutants households in each country derive utility from the consumption of the domestically produced good but incur costs through the total stock of pollution stock externality in this setting we characterize cooperative as well as noncooperative pollution control strategies of the governments of the two countries that maximize the discounted stream of net benefits of a representative consumer it turns out that when the governments are restricted to use linear strategies noncooperative behavior results in overall losses for both countries if on the contrary governments use nonlinear markov perfect strategies and the discount rate is small enough a pareto efficient steady state pollution stock can be supported as a differentiable subgame perfect equilibrium thus the emergence of first best solutions cooperative outcomes does not require any institutional arrangements threats retaliation etc but can be brought about through the use of nonlinear markov perfect equilibrium strategies

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

pigouvian taxation of energy for flow and stock externalities and strategic noncompetitive energy pricing abstract the literature on energy and carbon taxes is by and large concerned about the derivation of globally efficient strategies in contrast this paper considers the dynamic interactions between cartelized energy suppliers and a consumers government that collectively taxes energy carriers for pigouvian motives two different kinds of external costs are associated with energy consumption flow e g acid rain and stock externalities e g global warming the dynamic interactions between a consumers government and a producers cartel are modeled as a differential game with a subgame perfect nash equilibrium in linear and nonlinear markov strategies the major implications are that the nonlinear solutions are pareto inferior to the linear strategies and energy suppliers may preempt energy taxation and thereby may raise the price at front however this effect diminishes over time because the producers price declines while taxes increase

economic contests comparative reward schemes contests are situations in which an individual s reward depends on his performance relative to others students are graded on a curve the candidate with the most votes gets the political office the underling who performs best is promoted to the executive position contests are useful in dealing with indivisible rewards reducing monitoring costs and minimizing risks from common uncertainties they are employed to sort potential participants and once they have entered to induce appropriate effort from them with monitoring precision and prize spreads as potential choice variables optimal contest structures are derived for fair and unfair contests among equal and unequal participants the converse problems of climbing low ability individuals enter the contest designed for high ability candidates and slumming are shown to be manageable

plurality and runoff systems and numbers of candidates although political scientists have in the last few decades learned much about the abstract properties of multicandidate electoral systems we have accumulated little theoretical knowledge on the ways in which strategic behavior of voters and candidates changes when we move from one voting system to another this essay has illustrated how the relative desirability of voting systems can change when the number of candidates usually considered fixed in such comparisons is taken as endogenous to the voting system in force at the time our main conclusion is therefore that the method of voting must be understood in relation to the total electoral system it is not enough to analyze properties of voting systems in the abstract but also in terms of the interactions that voting systems have with political groups and the constitutional setting

nonlinear strategies in dynamic duopolistic competition with sticky prices abstract we discuss nonlinear strategies in an infinite horizon duopoly game with sticky prices where firms maximize their discounted sum of profit we construct a stationary feedback equilibrium without guessing value functions and feedback strategies that solve the hamilton jacobi equation for this purpose we study the auxiliary equation that is derived from the hamilton jacobi equation we show that the domain of the state space plays an crucial role in characterizing feedback equilibria and discuss several implications of this observation in particular we find that when the upper bound of the state space is not very high previously unknown feedback equilibria emerge

choosing a runoff election threshold this paper investigates when a runoff election is desirable and when a plurality result is good enough a runoff election increases the likelihood that the condorcet winner will be elected but also entails additional costs the metric for determining whether a runoff election is desirable will be the probability that the winner of the plurality election would win an ensuing runoff statistical models of voter behavior are developed that estimate this probability which are verified with runoff election data from united states elections the models allow governments to make more informed choices in creating rules to decide when to hold runoff elections

the demand for irrigation water in the high plains of texas 1957 80 a new method of calculating groundwater pumpage is used to estimate water demand these results are used via the gisser sanchez model to show that pumpage regulation is unlikely to be beneficial in the texas high plains a sensitivity analysis is performed on present value profits under optimal control and competitive schemes using different water demand slope and intercept values the results indicate that the gisser sanchez rule is useful in determining the divergence in pumpage time paths and percentage difference in profits under the two schemes but it is not insightful in determining the nominal difference in profits

the externalities associated with the common property exploitation of groundwater abstract in this paper the rate of groundwater extraction under the common property arrangement is the outcome of a dynamic game played with feedback strategies the analysis clarifies the externalities associated with the common property extraction of groundwater and identifies an risk externality that arises when firms are risk averse identifying the various externalities bears on the development of appropriate forms of groundwater management in particular the risk externality would be unknown to the watermaster of a central control agency suggesting the need for creative decentralized forms of groundwater management

optimal management of a confined groundwater system abstract dynamic programming is applied to a relatively simple economic and hydrologic model of a confined aquifer system in southwest montana to determine an optimal interseasonal allocation schedule the derived decision rule demonstrates the economic advantage of maintaining a confined groundwater system while localized intraseasonal loss of the artesian pressure may occur it is important to maintain this pressure from year to year because of its role in reducing extraction costs the welfare gap as measured by differences in the net present value of economic returns to the basin under an optimal use policy versus an uncontrolled common pool situation is not trivial sensitivity analysis indicates that assumptions about uniformity of land productivity vis a vis their impact on the shape of the returns function the discount rate and the level of electric power rates are particularly critical with respect to the magnitude of the commonality problem

benefits from groundwater management magnitude sensitivity and distribution empirical estimates of benefits from groundwater management are reported for an area in california with heavy reliance on groundwater supplies benefits are quite sensitive to the water demand schedule and interest rate but less sensitive to other parameters however in all cases considered the increases in welfare from groundwater management are less than ten percent tax revenues received under a system of pump taxes are four to five times as large as the benefits from management thus groundwater users gain under a system of quotas but may suffer substantial welfare losses under pump taxes

non cooperative institutions for sustainable common pool resource management application to groundwater as demands for limited natural resources increase developing management institutions that ensure the sustainability of such resources is essential many natural resources are common pool resources cprs managed under different non cooperative cooperative and externally imposed management frameworks while early studies of non cooperative cpr management suggest inevitable tragedy of the commons here we discuss how users can avoid tragic outcomes by changing their decision making rationales and exploitation strategies even in a non cooperative environment this paper introduces and compares various types of non cooperative institutions that are available to manage cprs these management institutions are then applied using a numerical groundwater exploitation example to determine how different planning variables are affected by the choice of management institution results indicate that cpr users can improve their gains by considering the externalities and developing long term exploitation plans as opposed to short term plans with no consideration of externalities that result in rapid exhaustion of the resource and lead to the so called tragedy of the commons

cheating and enforcement in asymmetric rank order tournaments author affiliation c jill stowe department of agricultural economics and department of economics university of kentucky 307 c e barnhart building lexington ky 40506 0276 usa jill stowe uky edu corresponding author scott m gilpatric department of economics university of tennessee 520 stokely management center knoxville tn 37996 usa sgilpatr utk edu acknowledgment the authors would like to thank participants at the tournaments contests and relative performance evaluation march 2008 meetings the fuqua summer brown bag series leslie marx luca rigotti and anonymous referees for helpful comments all remaining errors of course are our own gilpatric received support from the u s environmental protection agency epa which provided funding for this research under star grant r832847 the research has not been subjected to epa review and therefore does not necessarily reflect the views of the agency and no official endorsement should be inferred 1 introductionamong the many issues surrounding incentives to cheat in rank order tournaments and contestants behavior when cheating is possible one of the most important is the effect of asymmetry in the position of the contestants if two contestants are competing for a prize but one has an advantage over the other such as greater ability or talent or simply being ahead because of the history of play up to that point in the contest will the trailing player necessarily be more likely to cheat because he needs to close the gap and has less to lose from possible disqualification might there be circumstances under which the leader cheats to maintain her advantage because if she does not the trailing player can close the gap by cheating this article presents a model to provide insights into how positional concerns influence cheating in rank order tournaments 1rank order tournaments present an environment in which the incentive to cheat may be particularly strong for a few reasons 2 first tournaments are generally used in environments in which actions are difficult to monitor second a small increase in a contestant s output can dramatically change his payoff if it increases his rank cheating in various forms has been observed in important competitive settings such as corporate promotion tournaments and sports competitions which can be broadly characterized as taking place in contests and can be modeled as rank order tournaments of the sort first introduced by lazear and rosen 1981 in this article we consider a game in which two heterogenous players simply choose whether or not to cheat this can be thought of as the final stage of a tournament in which players have previously chosen effort and now find themselves having an opportunity to cheat while knowing their current position relative to each other or it can be considered as the final round of a multistage tournament in which one player is ahead of the other entering the last phase of competition our focus is on how equilibrium cheating behavior is affected by varying the intensity of enforcement represented by the probability that contestants are audited to detect cheating and on the conditions required to achieve complete deterrence of cheating and thus a clean contest consistent with intuition we find that the trailing player has a strong incentive to cheat but in some circumstances it is the leading player who is more likely to cheat in addition we explore how differences in the auditing regime affect cheating behavior we find that employing correlated audits both contestants are audited simultaneously with some probability and otherwise neither is yields less frequent cheating in the mixed strategy equilibrium of the game than if the two contestants are audited with an equal probability but as a result of independent random draws using a correlated audit regime achieves more effective deterrence of cheating than independent audits for any given expenditure of resources when resources are not sufficient to achieve full deterrence

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

cheating to win dishonesty and the intensity of competition we argue that the intensity of competition within a group or organization can have an important influence on whether or not people cheat to make this point we first work through a simple model of strategic misreporting in the workplace for low and high levels of competition we show that in equilibrium few are predicted to misreport it is for medium levels of competition that misreporting is predicted to be highest we test this prediction experimentally and find good support for it this finding has implications for the design of incentive structures within groups and organizations

leviathan governments and carbon taxes costs and potential benefits abstract this paper addresses positive aspects of the global warming debate that so far has been concerned by and large with normative issues the paper considers a consumers government that appreciates tax revenues as such leviathan in addition to conventional measures of welfare i e carbon taxes serve the dual purpose of correcting for externalities here global warming or more generally a stock externality from energy use and of raising revenues this government faces either a competitive or a perfectly cartelized supply the major findings are 1 i consumers may benefit from a leviathan government that appropriates some of the monopoly rent by deterring preemption to some extent 2 ii the leviathan motive raises initial taxes and thereby lowers initial emissions but increases the long run stock externality in a play with linear strategies 3 iii there exists a continuum of equilibria in nonlinear markov strategies which are however pareto inefficient compared with the linear strategies 4 iv but in case of a binding resource constraint nonlinear strategies are the only feasible ones

monitoring motivation and management the determinants of opportunistic behavior in a field experiment economic models of incentives in employment relationships are based on a specific theory of motivation employees are rational cheaters who anticipate the consequences of their actions and shirk when the marginal benefits exceed costs we investigate the rational cheater model by observing how experimentally induced variation in monitoring of telephone call center employees influences opportunism a significant fraction of employees behave as the rational cheater model predicts a substantial proportion of employees however do not respond to manipulations in the monitoring rate this heterogeneity is related to variation in employee assessments of their general treatment by the employer jel d2 j2 l2 l8 m12

winning isn t everything corruption in sumo wrestling although the theoretical literature on corruption is well developed empirical work in this area has lagged because it has proven difficult to isolate corrupt behavior in the data in this paper we look for evidence of corruption in an unlikely place the highest echelons of japanese sumo wrestling this paper provides strong statistical evidence documenting match rigging in sumo wrestling a non linearity in the incentive structure of promotion leads to gains from trade between wrestlers on the margin for achieving a winning record and their opponents we show that wrestlers win a disproportionate share of the matches when they are on the margin increased effort can not explain the findings winning on the bubble is more frequent when the two competitors have met often in the past success on the bubble tends to rise over the course of a wrestler s career but declines in his last year consistent with the game theoretic predictions wrestlers who are victorious when on the bubble lose more frequently than would be expected the next time they meet that opponent suggesting that part of the payment for throwing a match is future payment in kind systematic differences across wrestling stables suggest that the stables play a role in facilitating the corruption in times of increased media scrutiny the match rigging disappears this abstract was borrowed from another version of this item

groundwater focusing on the real issue most studies of the welfare economics of groundwater have focused mainly on the dichotomy between optimal control of groundwater use and no control at all this article argues that under circumstances that generally prevail in semiarid zones assigning property rights to groundwater and permitting the market to determine the allocation of water use can lead to a second best solution an argument is made that if potential users would be allowed to coase bargain with incumbent users on the issuance of new groundwater rights the second best solution is elevated to a pareto optimal solution this article is also a tale of two states water law and performance in new mexico and arizona

current issues in the economics of groundwater resource management the issue of groundwater management remains a practical concern in many regions throughout the world while water managers continue to grapple with the question of how to manage this resource in this article we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity we present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources indicate why the role of the market is limited with respect to the price of this very complex resource and point to the mechanisms that can pull competitive groundwater price and quality graded quantity of groundwater in line with their equilibrium levels in particular we critically review economic models of groundwater use examine the potential for groundwater management discuss the difficulties encountered in the estimation of the relevant control variables of such models and identify the advantages and limitations of the instruments devised for the efficient use allocation of this resource finally we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation and we suggest a core of conditions necessary for successful groundwater management reforms

the effects of well management and the nature of the aquifer on groundwater resources we compare groundwater use under collective well management in china where village leaders allocate water among households and under private well management where farmers either pump from their own wells or buy water from wells owned by other farmers villages are divided into connected or isolated groups depending on whether there are lateral groundwater flows between aquifers underlying a village and neighboring ones in rural china households under collective well management use less water even under collective management households located in connected villages use more water indicating that the connectedness of the aquifers may undermine leaders incentives to conserve water

uncertainty and irreversibility in groundwater resource management abstract optimal exploitation of renewable groundwater resources when extraction affects the probability of occurrence of an irreversible event is studied the term irreversible signifies that the event occurrence renders the resource obsolete it is found that uncertainty concerning the event occurrence has a profound effect under certainty when the stock level below which the event occurrence has a profound effect the optimal state process converges to a unique equilibrium state under uncertainty when the event occurrence level is unknown we identify equilibrium intervals and show that optimal processes initiated elsewhere converge to a boundary of one of these intervals inside an equilibrium interval the expected loss due to the event occurrence is so high that it does not pay to extract in excess of recharge even though under certainty doing so would be beneficial

competitive versus efficient extraction of a common property resource the groundwater case abstract in this paper socially optimal and private extraction of a common property aquifer are compared open loop equilibrium and feedback equilibrium in linear strategies have been computed to characterize private extraction the use of these two equilibrium concepts allows us to distinguish between cost and strategic externalities as long as the open loop solution captures only the cost externality and the feedback solution captures both the results show that strategic behaviour increases the overexploitation of the aquifer compared to the open loop solution however if the groundwater storage capacity is large the difference between the socially optimal and private extraction the latter characterized by a feedback equilibrium is negligible

cheat or perish a theory of scientific customs abstract performance incentives have become increasingly important in academia evidence suggest that they increase not only researchers effort but also their cheating we develop a principal agent framework in which a research institution principal aims to reward scientific productivity considering the social benefit of research and the remuneration costs researchers agents take into account what others are doing as a consequence the introduction of performance incentives not only leads to fraudulent behavior in the short run but may also deteriorate the scientific norm in the long run in the face of these dynamics the principal pursues two goals to increase productivity effort incentive policy and to deal with fraud anti fraud policy several factors determine the optimal mix of policies economic factors researchers cost of providing high or low effort the societal value of scientific knowledge and the societal costs of scientific misbehavior and psychological factors the evolution of norms over time an important insight of our theory is that when research institutions seek to encourage the production of high quality research they should also raise the salary for normal research to avoid misconduct

comparing electoral systems a geometric analysis this paper constructs a game theoretic model of elections inalternative electoral systems with three or four candidates each electoral system specifies how the platforms of thecandidates and their scores give rise to an outcome whengeometrical analysis shows that two outcomes can competeagainst each other for victory a pivot probability isassociated to that pair each voter is rational and picks thecandidate that maximizes her expected utility which resultsfrom the balancing of her preferences and beliefs about thepivot probabilities candidate positioning is endogenous andthe result of a nash game the possible equilibria arecomputed for plurality and runoff majority systems

why zero tolerance of misconduct is undesirable in contests competition can foster misconduct in any circumstance where the organizer of a contest cannot perfectly monitor contestants actions or when doing so is prohibitively costly although misconduct comprises all actions that are contrary to the interest of the organizer it is not necessarily the case that it is optimal to prohibit all such behavior in this paper we determine the equilibrium level of misconduct chosen by players in a symmetric rank order tournament between two competitors in which the organizer tolerates some level of misconduct in addition to showing that zero tolerance may not minimize the level of misconduct in equilibrium we show that there exists a range of tolerated misconduct where a symmetric mixed strategy equilibrium exists with players cheating i e misconduct above the tolerated level with some probability when the gain from misconduct is uncertain and unknown the contest organizer faces a tradeoff tolerating more misconduct will reduce such behavior when the state of temptation is high but increase it when temptation is low jel j33 k42

strategic behavior and efficiency in the common property extraction of groundwater groundwater has always been regarded as a common property resource where entry is restricted by land ownership and private exploitation is inefficient in 1980 gisser and sanchez presented a first estimation of this inefficiency cornparing socially optimal exploitation with private competitive exploitation using a model with linear water demand average extraction cost independent of the rate of extraction and linearly decreasing with respect to the water table level they characterized the private exploitation of the aquifer assuming that farmers are myopic and choose their rate of extraction to maximize their current profits whereas optimal exploitation is obtained by maximizing the present value of the stream of aggregate profits their results show that if the storage capacity of the aquifer is relatively large the difference between the two systems is so small that it can be ignored for practical consideration this result has been called the gisser sanchez rule by nieswiadomy 1985 and it has and important policy implication regulation of the resource does not seem justified since the profits it brings are not very high 1

pareto improving water management over space and time the honolulu case we model welfare gains from efficient allocation of groundwater over space and time relative to the status quo policy of financial cost recovery in order to promote political feasibility an intertemporal compensation plan is devised that renders the reform pareto improving gainers from the reform finance the compensation in proportion to their benefits through a block pricing scheme for the honolulu case only 7 of the 441 million in gains to winners is needed to compensate losers from the reform future winners from the reform also repay the deficit created by the compensation package much as state and local governments finance capital improvements copyright 2009 oxford university press

digging for golden carrots an analysis of research tournaments contracting for research is often infeasible because research inputs are unobservable and research outcomes cannot be verified by a court sponsoring a research tournament can resolve these problems a model is presented in which contestants compete to find the innovation of highest value to the tournament sponsor the winner receives a prespecified prize the tournament game has a unique subgame perfect equilibrium free entry is not optimal because equilibrium effort by each researcher decreases in the number of contestants an optimally designed research tournament balances the probability of overshooting the first best quality level against the probability of falling short copyright 1995 by american economic association