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

patent pools as a solution to efficient licensing of complementary patents some experimental evidence production requiring licensing groups of complementary patents implements a coordination game among patent holders who can price patents by choosing among combinations of fixed and royalty fees summed across patents these fees become the total producer cost of the package of patents royalties because they function as excise taxes add to marginal costs resulting in higher prices and reduced quantities of the downstream product and lower payoffs to the patent holders using fixed fees eliminates this inefficiency but yields a more complex coordination game in which there are multiple equilibria which are very fragile in that small mistakes can lead the downstream firm to not license the technology resulting in inefficient outcomes we report on a laboratory market investigation of the efficiency effects of coordinated pricing of patents in a patent pool we find that pool like pricing agreements can yield fewer coordination failures in the pricing of complementary patents

bidding behavior in a symmetric chinese auction abstract this paper purposes a symmetric all pay auction where the bidders compete neither for an object nor the object itself but for a lottery on receive that lottery is determined endogenously through the bids this auction is known as chance auction or more popularly as chinese auction the model considers the possibility that for some bidders the optimal strategy is to bid zero and to rely on luck it showed that bidders become less aggressive when the lottery satisfies a variational condition it was also shown that luck factor is decisive to determine if the expected payoff in chinese auction is bigger or smaller than expected payoff in standard all pay auction

prizes and lemons procurement of innovation under imperfect commitment the literature on r d contests implicitly assumes that contestants submit their innovation regardless of its value this ignores a potential adverse selection problem the present paper analyzes the procurement of innovations when the procurer cannot commit to never bargain with innovators who bypass the contest we compare xed prize tournaments with and without entry fees and optimal scoring auctions with and without minimum score requirement our main result is that the optimal xed prize tournament is more pro table than the optimal auction since preventing bypass is more costly in the optimal auction

who benefits from local job growth migrants or the original residents bartik t j 1993 who benefits from local job growth migrants or the original residents reg studies 27 297 311 this paper surveys research on whether the new jobs resulting from growth in a local economy e g a metropolitan area go to inmigrants or the original local residents the empirical evidence suggests that around one quarter of the new jobs from local growth increases the labour force participation rates of local residents in the long run these long run effects may occur because local growth provides residents with valuable employment experience research also suggests that minorities benefit most from growth and that higher wage industries provide greater employment benefits for local residents bartik t j 1993 qui est ce qui beneficie de la croissance d emploi locale les migrants ou la population autochtone reg studies 27 297 311 cet article etudie la recherche effectuee dans le but d evaluer si les nouveaux emplois dus a la croissance d une economic locale par exemple une

contest design and optimal endogenous entry this paper derives the effort maximizing contest rule and the optimal endogenous entry in a context where potential participants bear fixed entry costs the organizer is allowed to design the contest under a fixed budget with two strategic instruments he sets the value of the prize purse and arranges a monetary transfer entry subsidy or fee for each participating contestant in other words the budget can either be used to subsidize participation or an entry fee can be charged to fund the prize purse the results show that the optimally designed contest attracts exactly two participating contestants in its unique subgame perfect equilibrium when there is a positive fixed entry cost and extracts all the surplus from participating contestants the study also shows that the direction and amount of the monetary transfer depend on the magnitude of the entry cost the contest organizer subsidizes entry when contestants bear substantial entry costs but charges an entry fee to fund the prize purse whenever the entry cost is sufficiently low

shipwrecks and treasure hunters we examine dynamic search as a game in which two rivals explore an island for a hidden prize of known value in every period until its discovery the players decide how much of the unsearched area to comb if a player finds the prize alone he wins it and the game ends players have a per period discount factor and costs proportional to the area they search first as a benchmark for efficiency we solve the one player search problem second in the two player setting we show that typically there is inefficient over search a result akin to the tragedy of the commons however for players with intermediate levels of patience there is the possibility of inefficient under search as players incorporate the expected future payoffs in their current search decisions finally with patient players several counterintuitive results can arise for example players might be better off searching a larger island or looking for a less valuable prize

employment growth worker mobility and rural economic development a county level labor market model is estimated for north carolina the model accounts for inter county commuting migration and within county adjustments to labor demand shocks econometric results indicate that most employment growth 70 80 during the 1980s was accommodated by changes in commuting flows evidence is also presented indicating that labor force growth and by extension population growth and associated fiscal impacts in rural counties is sensitive to employment growth in nearby urban counties these results highlight two opposing forces related to spatial spillovers that are usually neglected in analyses of the economic and fiscal impacts of employment growth copyright 2003 oxford university press

contests with multiple rounds this paper studies contests where players have the flexibility to add to their previous efforts after observing their rivals most recent effort in an intermediate stage it is found that 1 contrary to previous findings the stackelberg outcome where the underdog leads and the favorite follows cannot be an equilibrium 2 there are multiple subgame perfect equilibria all occurring on the underdog s usual one shot reaction function in between and including the one shot cournot nash and stackelberg outcome with the favorite leading 3 the total equilibrium effort is typically greater than or equal to what a one shot cournot nash play would predict and 4 in settings where players can choose whether or not to disclose their early actions to the rival both the favorite and the underdog disclose in equilibrium applications in sports lobbying and r d races are discussed

the effect of process management on different types of innovations an analytical modeling approach abstract we investigate the trade off between r d efficiency and creativity during the development of a new product a firm s ability to balance efficiency with innovation positively affects its capacity to maintain its competitiveness although the trade off between efficiency and creativity has long been discussed in terms of practical application little analytical research has been performed to enhance theoretical understanding to redress this gap in the literature we present an extreme value model that accounts for innovation type and competition intensity and offer a set of theoretical and practical insights to demonstrate that the effects of process management depend on the nature of the innovation employed we show that the inverse relationship between efficiency and creativity is more pronounced if r d projects represent paradigm shifting innovations rather than incremental innovations we then demonstrate how competition drives firms to decrease investment in innovation activities and improve process efficiency to maximize profit our results suggest that process management activities are less recommended for firms that pursue radical innovation and the acceleration of growth

stochastic dynamic models with stock dependent rewards abstract we examine the behavior of optimal consumption and investment policies in aggregate stochastic growth models when utility depends on both consumption and the stock level such models arise in the study of renewable resources monetary growth and growth with public capital conditions are given which guarantee that optimal policies are monotonic the limiting behavior of the optimal consumption investment and output processes is characterized

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

competition among contests when several contests compete for the participation of a common set of players a contest s allocation of prizes not only induces incentive effects but also participation effects our model predicts that an increase in the sensitivity with which contest outcomes depend on players efforts makes flatter prize structures more attractive to participants in equilibrium contests that aim to maximize the number of participants will award multiple prizes if and only if this sensitivity is sufficiently high moreover the prize awarded to the winner is decreasing in the contests sensitivity we provide empirical evidence from professional road running using race distance as a measure of sensitivity we show that steeper prize structures are more attractive to top ranked runners in longer that is less sensitive races in line with our theory longer races do in fact offer steeper prize structures

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

what money canʼt buy efficient mechanism design with costly signals i study the ex ante efficient allocation of a set of quality heterogeneous objects to a number of heterogeneous risk neutral agents agents have independent private values which represent the maximum cost they are willing to sustain to obtain an object of unitary quality the designer faces a trade off between allocative efficiency and cost of screening because the cost sustained is wasted the optimal mechanism ranks agents based on their marginal contribution to social surplus and distributes objects to higher ranked agents the ranking is independent of the scarcity of objects or the extent of their heterogeneity if the hazard rates of the distributions of values are increasing agents are ranked according to their expected values if hazard rates are decreasing and agents are symmetric the objects are allocated to the agents that sustain the highest costs in general optimal mechanisms combine both pooling and screening of values

uncertainty and markets for renewable resources abstract the market allocation of renewable resources is examined when growth rates are affected by random disturbances given free access to a renewable resource environmental disturbances are shown to affect the biological survival of the resource the optimal solution is then examined and it is shown to be achieved by a competitive allocation when property rights are clearly defined given rational expectations or a complete set of contingent futures markets the stochastic dynamics are shown in each case to differ considerably from the deterministic model

efficient division of profits from complementary innovations abstract many products including microprocessors telecommunications devices computer software and on line auction services make use of multiple technologies each of which is essential to make or sell the product the owner of one technology benefits from the existence of complementary technologies we show that despite this externality the structure of payoffs that support efficient r d investment by duopolists racing to discover a single innovation generalizes to the structure that supports efficient investment for complementary innovations the paper also examines how alternative intellectual property regimes and legal institutions affect r d investment in complementary technologies the results have policy implications for the organization of r d the assessment of damages for patent infringement and allocations of value in patent pools

patents versus ex post rewards a new look abstract economic studies that aim at comparing the patent system social efficiency versus an ex post reward system rest on an outdated view of patents they assume that firms use the patent system only in order to be granted a short term commercial monopoly rent this assumption is convenient because it allows straightforward comparisons between patents and rewards but it is not confirmed by empirical studies which stress that in many industries most firms use patents as strategic devices to trade technologies and to ease r d collaborations this change leads to rethinking the framework of the patent reward debate

selection of entrepreneurs in the venture capital industry an asymptotic analysis we study a model of entrepreneurs who compete in an auction like setting for venture capital vc funding in a setting where limited capital dictates that the vc can only finance the best entrepreneurs with asymmetric information vcs can only assess entrepreneurs by the progress of development which in equilibrium reveals the quality of the new technology using an asymptotic analysis we prove that in attractive industries having a large number of entrepreneurs competing for vc funding could lead to underinvestment in technology by entrepreneurs as the effort exerted by losing entrepreneurs is wasted the study then proceeds to characterize the conditions under which a greater number of competing entrepreneurs is better the model also demonstrates that vcs could possibly increase their payoff by concentrating on a single industry in addition the study also provides some insights on the effects of multiple investments by vcs and the effects of competition among vcs on the same investments

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

dynamic programming models of fishing competition it is natural to consider the stock of any renewable resource as a capital stock and treat the exploitation of that resource in much the same way as one would treat accumulation of a capital stock this has been done to some extent by cohn clark and gordon monro and by ngo van long whose papers contain a discussion of this point of view however the analysis is much simpler than it appears in the literature especially since the interaction between markets and the natural biological dynamics has not been made clear three issues which have been raised only tangentially are important for the understanding of the economics of renewable resources the first arises from the fact that the fish population might not be able to sustain the market determined amount of fish and hence should be allocated optimally over time second there is the cost externality here costs are affected by the size of the stock of fish which again affects the optimal allocation over time the third issue is how central planning typically used in capital theory can be employed as a tool in analyzing a decentralized economy with perfect futures markets and property rights in this paper a simple framework using only elementary mathematical techniques will be provided in which many important results new to the literature as well as many familiar results can be derived one bonus of this approach is that much of the previous literature can be organized and rationalized the simplicity of the mathematics has the effect of revealing the underlying economic intuition of the subject throughout the paper as a matter of convenience the selfrenewing resource will be referred to as fish however it should be clear that the analysis is perfectly general in that it can be applied to any self renewing resource in fact by specializing the production function an elementary exposition of the theory of exhaustible resources is implicit there are two main sections to this work plus an appendix the first section analyzes the time path of prices output and resource stock under the assumption of free entry competition and the second section studies optimal planning or perfect competition in the first part of the discussion of each market structure extraction costs are assumed to be independent of the size of the fish stock in the second part of each section this assumption is relaxed finally the appendix contains several of the results used in the body of the paper the case of free entry competition can be treated in a very simple manner each period s output is determined by the intersection of the demand and marginal harvesting cost curves i e supply equals demand subtracting this output from the natural dynamics yields the dynamics of free entry competition using this technique it is easy to see the conditions under which free entry competition leads to the exhaustion of the stock of fish furthermore the free entry case serves as a benchmark by which to evaluate the effects of the institution of property rights on the exploitation of the resource the case of a centrally planned economy is studied next this case is shown to be identical to a competitive outcome in which property rights are clearly defined and prices and outputs are endogenously determined so as to be consistent with demand conditions one result coincidentally is that it is possible that the optimal solution might be obtained without property rights the tech the hebrew university university of virginia university of illinois and northwestern university respectively research support from the national science foundation under grants soc 77 27340 and soc 7905900 and the us israel bsf under grant 1828 79 is gratefully acknowledged

attracting skeptical buyers negotiating for intellectual property rights expropriable disclosures of knowledge to prospective buyers may be necessary to facilitate the sale of intellectual property ip in principle confidentiality agreements can protect disclosures by granting the seller rights to sue for unauthorized use in practice sellers often waive confidentiality rights we provide an incomplete information explanation for the waiver of confidentiality rights that are valuable in complete information settings waiving sacrifices the protective value of confidentiality to gain greater buyer participation buyer skepticism which reduces participation arises endogenously from three elements asymmetric information regarding seller ip rent dissipation from competition for ip and ex post costs from expropriation lawsuits

the impact of managerial change on performance the role of team heterogeneity when a key responsibility of a manager is to allocate more or less attractive tasks to subordinates these subordinates have an incentive to work hard and demonstrate their talents as a new manager is less well acquainted with these talents this incentive mechanism is reinvigorated after a management change but only when the team is suciently homogenous otherwise a new manager quickly makes similar choices as the old one did we investigate this hypothesis using a large data set on coach dismissals in the german football league where the selection of players is indeed a key task of the coach indeed we nd substantial evidence that coach replacements enhance team performance only in homogenous teams moreover from a methodological point of view we argue that there is typically a negative selection bias when evaluating succession eects which might reconcile previous ndings of no or even negative eects with the vast number of dismissals

the selection efficiency of tournaments abstract we discuss tournaments in terms of their efficiency as probabilistic mechanisms that select high quality alternatives players in a noisy environment we characterize the selection efficiency of three such mechanisms contests binary elimination tournaments and round robin tournaments depending on the shape of the distribution of players quality the number of players and noise level the results have implications as to how and under what circumstances the efficiency of tournament based selection can be manipulated

incentivizing r d prize or subsidies abstract this paper studies the optimal design of r d contests a sponsor e g the us department of defense or the world health organization wants to improve the quality of the winning products to do so it partitions its budget between two schemes an inducement prize and efficiency enhancing subsidies to the firms competing in the contest prizes and subsidies have different functions and they provide complementary incentives in the optimally designed contest subsidies increase while the prize decreases if the innovation process is more challenging further sensible conditions are identified under which the optimal contest implements either a handicapping scheme by preferentially subsidizing the underdog or a national champion scheme by favoring the favorite our analysis yields a number of useful implications and sheds light on an array of r d incentive schemes such as the dod s design competitions and vaccine development incentives

mutual fund tournaments the sorting bias and new evidence previous findings regarding the risk shifting behavior of mid year underperforming mutual fund managers are mixed in this article i show that this is due to a sorting bias which is caused by the sorting of first half risk levels when establishing relative mid year performance even without risk shifting behavior mean reversion of these sorted risk levels results in the detection of tournament behavior after correcting for this bias i find evidence supporting the hypothesis that first half underperforming managers increase portfolio risk during the second half of the year and that this tournament behavior is not dependent on first half market conditions the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

female participation and labor market attachment in rural canada this article explores the reasons for differences in female rural urban participation rates by estimating a dynamic model of participation allowing for unobserved heterogeneity and state dependence using canadian panel data the results suggest that overall observed differences in rural urban participation rates are primarily due to differences in observed socioeconomic characteristics however for women resident in low income households there is evidence that the operation of rural labor markets effectively lowers their participation rates copyright 2002 oxford university press

political culture and discrimination in contests abstract many economic and political decisions are the outcome of strategic contests for a given prize the nature of such contests can be determined by a designer who is driven by political considerations with a specific political culture the main objective of this study is to analyze the effect of political culture and of valuation asymmetry on discrimination between the contestants the weights assigned to the public well being and the contestants efforts represent the political culture while discrimination is an endogenous variable that characterizes the mechanism allocating the prize we consider situations under which the optimal bias of the designer is in favor of the contestant with the larger or smaller prize valuation and examine the effect of changes in the political culture and in valuation asymmetry on the designer s preferred discrimination between the contestants focusing on the two most widely studied types of contest success functions deterministic all pay auctions and logit csfs we show that an all pay auction is always the preferred csf from the point of view of the contest designer this result provides a new political economic micro foundation to some of the most commonly used models in the contest literature

ranking games and gambling when to quit when you re ahead it is common for rewards to be given on the basis of a rank ordering so that relative performance amongst a cohort is the criterion in this paper we formulate an equilibrium model in which an agent makes successive decisions on whether or not to gamble and is rewarded on the basis of a rank ordering of the final position amongst competing players one application of this model is to the behavior of mutual fund managers who are paid depending on funds under management which in turn are greatly influenced by annual or quarterly rank orderings our model deals with a situation in which fund managers can elect either to pick stocks or to use a market tracking strategy in equilibrium the distribution of the final position will have a negative skew we explore how this distribution depends on the number of players the probability of success when gambling the structure of the rewards and on information regarding the performance of other players

changes in labor force participation in the united states the labor force participation rate in the united states increased almost continuously for two and a half decades after the mid 1960s pausing only briefly during economic downturns the pace of growth slowed considerably during the 1990s however and after reaching a record high of 67 3 percent in the first quarter of 2000 participation had declined by 1 5 percentage points by 2005 this paper reviews the social and demographic trends that contributed to the movements in the labor force participation rate in the second half of the twentieth century it also examines the manner in which developments in the 2000s reflect a break from past trends and considers implications for the future

the assessment the economics of sport the study of sports economics has expanded rapidly in recent years in response to significantly increased demand for sport itself for economic analysis relevant to commercial litigation in sport for lively teaching material in schools and universities and for research into the incentive properties of sporting contests while much of the literature has focused on the issue of competitive balance and how to achieve it there have still been relatively few studies that apply the lessons of the economic theory of contests to the analysis of sports there remain huge opportunities both to develop our theoretical understanding of incentive mechanisms in sport and to conduct empirical research in the operation of incentives in sporting contests copyright 2003 oxford university press

project selection commitment and competition we examine project selection decisions of firms constrained in the number of projects they can handle at once a new project opportunity arises every period taking on a project requires a commitment of uncertain duration preventing the firm from selecting another project in subsequent periods until the commitment ends in our dynamic game when two firms are free of commitment they move sequentially in random order symmetric pure strategy markov perfect equilibria always exist in equilibrium the first mover strategically rejects some projects that are then selected by the second mover even when the value of the project is the same for both firms a monopolist rejects more projects and adopts ones of higher average quality compared to the duopolist duopolists select too few projects compared to their jointly optimal behavior we extend the model to allow for externalities asymmetry and n 2n 2 firms

closed or open innovation problem solving and the governance choice scholars have recently highlighted the promise of open innovation in this paper we treat open innovation in it s different forms and manifestations as well as internal or closed innovation as unique governance forms with different benefits and costs we discuss how each governance form whether open or closed is composed of a set of instruments that access a different types of communication channels for knowledge sharing b different types of incentives and c different types of property rights for appropriating value from innovation we focus on the innovation problem as the central unit of analysis arguing for a match between problem types and governance forms which vary from open to closed and which support alternative forms of solution search in all the goal of this paper is to provide a comparative framework for managing innovation where we delineate and discuss four categories of open innovation governance forms markets partnerships contests and tournaments and user or community innovation and compare them with each other and with two internal or closed forms of innovation governance authority and consensus based hierarchy

of tournaments and temptations an analysis of managerial incentives in the mutual fund industry we test the hypothesis that when their compensation is linked to relative performance managers of investment portfolios likely to end up as losers will manipulate fund risk differently than those managing portfolios likely to be winners an empirical investigation of the performance of 334 growth oriented mutual funds during 1976 to 1991 demonstrates that mid year losers tend to increase fund volatility in the latter part of an annual assessment period to a greater extent than mid year winners furthermore we show that this effect became stronger as industry growth and investor awareness of fund performance increased over time

the optimal allocation of prizes in contests we study a contest with multiple not necessarily equal prizes contestants have private information about an ability parameter that affects their costs of bidding the contestant with the highest bid wins the first prize the contestant with the second highest bid wins the second prize and so on until all the prizes are allocated all contestants incur their respective costs of bidding the contest s designer maximizes the expected sum of bids our main results are 1 we display bidding equlibria for any number of contestants having linear convex or concave cost functions and for any distribution of abilities 2 if the cost functions are linear or concave then no matter what the distribution of abilities is it is optimal for the designer to allocate the entire prize sum to a single first prize 3 we give a necessary and sufficient conditions ensuring that several prizes are optimal if contestants have a convex cost function

the economic design of sporting contests what is the optimal number of entrants in a race or the optimal number of teams in a baseball league what is the optimal structure of prizes for a golf tournament or degree of revenue sharing for a football championship how evenly balanced should the competing teams be in the nascar or formula one championships what is the maximum number of entrants per nation to the olympic games that should be permitted what quota of qualifying teams to the soccer world cup should be allocated to the developing nations

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

difference in interim performance and risk taking with short sale constraints abstract absent much theory empirical works often rely on the following informal reasoning when looking for evidence of a mutual fund tournament if there is a tournament interim winners have incentives to decrease their portfolio volatility as they attempt to protect their lead while interim losers are expected to increase their volatility so as to catch up with winners we consider a rational model of a mutual fund tournament in the presence of short sale constraints and find the opposite interim winners choose more volatile portfolios in equilibrium than interim losers several empirical works present evidence consistent with our model however based on the above informal argument they appear to conclude against the tournament behavior we argue that this conclusion is unwarranted we also demonstrate that tournament incentives lead to differences in interim performance for otherwise identical managers and that mid year trading volume is inversely related to mid year stock return

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

investment tournaments when should a rational agent put all eggs in one basket we study investment tournaments a class of decision problems involving gradual allocation of investment among several alternatives whose values are subject to shocks the decision maker s payoff is determined by the final values of the alternatives an important example of such tournaments is the career choice problem since a person typically starts by investing in learning several professions we show that in many cases it is optimal for the decision maker to allocate all resources to the most promising alternative in each time period we also show that in promotion tournaments the workers optimally exert higher efforts at an early stage in order to capture a larger share of employer s investment such as mentoring

strategic exploitation with learning and heterogeneous beliefs abstract we study the effect of learning with heterogeneous beliefs on the exploitation of a renewable common pool resource to that end we extend the great fish war model of levhari and mirman 1980 to a learning environment in which several agents interact strategically and learn about the distribution of the stochastic evolution of the resource we find that the effect of anticipation of learning with heterogeneous beliefs is twofold first the anticipation of learning makes future payoffs more uncertain which induces the agents to decrease present exploitation due to the precautionary motive second under heterogeneity of beliefs there is a differential informational externality that induces the agents to increase or decrease present exploitation we also perform a comparative analysis on the cournot nash equilibrium with learning by studying the effect of optimism and riskiness on resource exploitation

risk taking in contests and the role of carrots and sticks i introduction when individuals compete for promotions bonuses or other rewards tied to their relative performance ranking vis a vis other contestants competition is likely to drive not just work effort but where imperfect monitoring permits other choices at the contestants discretion in this article we ask how rank dependent compensation influences attitudes toward risk or the choice of variance of output when contestants have opportunities to influence this aspect of their output distribution unlike previous literature we assume that it is costly for contestants to alter the variance of output and that identical contestants simultaneously choose both the mean of their output distribution i e work effort and its variance our analysis emphasizes the importance of the number of players and symmetry or lack thereof of payoffs on contestants incentives we find that contestants will engage in risk seeking increasing the variance of their output distribution in contests among three or more players when the payoff structure offers a greater prize for ranking first than the penalty for ranking last as happens in winner take all contests if the tournament organizer or sponsor values the aggregate output of the contestants as is typically assumed in labor market tournaments this risk seeking behavior is inefficient because it is costly but does not increase the expected output however we argue that many contests such as the research and development tournaments first modeled by taylor 1995 may be characterized by an organizer who cares only or primarily about the highest output achieved by a single contestant e g the best submission received in such cases the organizer may benefit from costly risk taking among contestants we show that three payoff levels a prize to the contestant ranked first a penalty to the contestant ranked last and a common intermediate payoff to all others are sufficient to achieve any combination of effort and variance of output that the organizer wishes to induce among contestants so long as the desired output variance does not exceed that which results from a winner take all prize structure therefore the sponsor s problem can be characterized as choosing the optimal mean and variance of the output distribution given the contestants costs of influencing the mean and variance of output in this way our model provides an explanation for the importance of both carrots prizes and sticks penalties in competitive settings only through the combined use of both can a contest organizer determine the effort and the variance of output chosen by contestants and doing so is necessary to achieve optimal performance from contests since the pioneering work of lazear and rosen 1981 nalebuff and stiglitz 1983 o keeffe viscusi and zeckhauser 1984 and others rank order tournaments or contests have been used to model incentives in a variety of economic settings in particular executive compensation has frequently been modeled as a tournament in which low level executives are motivated by the prospect of climbing the corporate ladder and obtaining the large salaries attendant to top ranking executives as in rosen 1986 and bognanno 2001 similarly the behavior of investment fund managers who compete for top fund rankings has been modeled as a tournament by brown harlow and starks 1996 taylor 1995 developed a model of research tournaments in which contestants search for an innovation and the best innovation submitted to the sponsor wins a prize the distinguishing feature of a tournament or contest is that contestants are paid based on the rank of their output relative to others rather than the level of output prize levels are set in advance and competition to win generates the incentive to exert effort to increase output lazear and rosen 1981 showed that rank order tournaments can provide an efficient incentive framework in a labor market setting when workers are risk neutral

carrots and sticks prizes and punishments in contests i introduction contests are widely used to model political lobbying sports competitions job promotions and r d races in most cases the contest s organizer has some control over the structure of rewards and punishments teachers determine who passes and who fails the exam a company sets rules about promotions and layoffs and sport governing bodies choose the number of teams advancing to a higher league and the number of those relegated to a lower one in this paper we characterize the optimal prize structure in a contest where the designer can use both rewards carrots and punishments sticks in order to motivate participants to exert effort 1 although both rewards and punishments are part of many existing incentive contracts the literature on contests focused on the incentive role of rewards because a contest that uses some punishments can be replicated by one that uses only rewards and yields the same incentives but this equivalence breaks down if the contest designer faces a budget constraint and if both rewards and punishments are costly the main focus of the present paper is to study contest design when the designer is budget constrained and it is costly to punish or reward players costly punishments appear in many situations for example in labor tournaments a firm usually incurs costs when firing workers who perform poorly e g worker compensation production disruption loss of clients and usually face search and replacement costs e g think about a faculty denying tenure to some candidates in other instances punishments are less costly to implement e g relegation in sport tournaments and we also briefly deal with this set up we assume here that the designer has a limited budget which means that costly punishments cannot be arbitrarily high subject to her budget constraint the designer determines the number and size of prizes punishments in order to maximize the participants expected total effort in particular some prizes can be positive rewards or negative punishments given the prize structure players choose their effort levels in order to maximize their expected payoff it is important to note that in a contest with n participants the marginal effect of each of n prizes on the participants total effort is different and can be either positive or negative if the marginal effect of the k th prize is positive its value given a budget constraint should be positive reward or zero and if the marginal effect is negative its value should be negative punishment or zero thus given that the contest designer has a limited budget he will prefer to distribute the entire prize sum to the prize with the highest marginal effect on the participants total effort relative to its cost in this paper we show that the relative effectiveness of punishments compared to rewards crucially depends on the curvature of the distribution of player abilities exploiting results about normalized spacings among order statistics developed by barlow and prochan 1966 we first revisit one of the main results in moldovanu and sela 2001 if punishment is not feasible the optimal prize structure offers a single reward to the top performer if rewards are not feasible we then show that the designer should only punish the player with the lowest performance if the distribution of abilities has an increasing hazard or failure rate if this last condition is not satisfied more punishments may be optimal if the designer can punish as well as reward the optimal prize structure will depend on the relative marginal cost of punishments and on the distribution of the players abilities for example if the marginal cost of punishments is the same as the marginal cost of rewards it is optimal to punish the worst performing player if the distribution of abilities is convex if that player is punished even high types will work hard to avoid performing worst because they know that there is a relatively high probability that competitors also have high types

optimal punishment in contests with endogenous entry abstract we study optimal punishment in an all pay contest with endogenous entry where the participant with the lowest performance may be punished when a small punishment is introduced the lowest ability players drop out and those of medium ability exert less effort while only the highest ability players exert more effort a sufficient condition is given for the optimal punishment to be zero if the objective is to maximize the expected total effort as cost functions become more convex punishment becomes less desirable when the objective is to maximize the expected highest individual effort a positive punishment is desirable under much weaker conditions

incentives and problem uncertainty in innovation contests an empirical analysis contests are a historically important and increasingly popular mechanism for encouraging innovation a central concern in designing innovation contests is how many competitors to admit using a unique data set of 9 661 software contests we provide evidence of two coexisting and opposing forces that operate when the number of competitors increases greater rivalry reduces the incentives of all competitors in a contest to exert effort and make investments at the same time adding competitors increases the likelihood that at least one competitor will find an extreme value solution we show that the effort reducing effect of greater rivalry dominates for less uncertain problems whereas the effect on the extreme value prevails for more uncertain problems adding competitors thus systematically increases overall contest performance for high uncertainty problems we also find that higher uncertainty reduces the negative effect of added competitors on incentives thus uncertainty and the nature of the problem should be explicitly considered in the design of innovation tournaments we explore the implications of our findings for the theory and practice of innovation contests this paper was accepted by christian terwiesch operations management

strategic exploitation of a common resource under environmental risk abstract we study the effect of environmental risk on the extraction of a common resource using a dynamic and non cooperative game in which an environmental event impacts the renewability and the quality of the resource we show that the anticipation of such an event has an ambiguous effect on extraction and the tragedy of the commons a risk of a reduction in the renewability induces the agents to extract less today while a risk of a deterioration in the quality has the opposite effect moreover when environmental risk induces conservation the tragedy of the commons is worsened

family proximity childcare and women s labor force attachment we show that close geographical proximity to mothers or mothers in law has a substantial positive effect on the labor supply of married women with young children we argue that the mechanism through which proximity increases labor supply is the availability of childcare we interpret availability broadly enough to include not only regular scheduled childcare during work hours but also an insurance aspect of proximity e g a mother or mother in law who can to provide irregular or unanticipated childcare using two large datasets the national survey of families and households and the public use files of the u s census we find that the predicted probability of employment and labor force participation is 4 10 percentage points higher for married women with young children living in close proximity to their mothers or their mothers in law compared with those living further away

a theory of grand innovation prizes abstract the past decade has witnessed a resurgence in innovation awards in particular of grand innovation prizes gips which are rewards to innovators developing technologies reaching performance goals and requiring breakthrough solutions gips typically do not preclude the winner also obtaining patent rights this is in stark contrast with mainstream economics of innovation theories where prizes and patents are substitute ways to generate revenue and encourage innovation building on the management of innovation literature which stresses the difficulty to specify ex ante all the technical features of the winning technologies we develop a model in which innovative effort is multi dimensional and only a subset of innovation tasks can be measured and contracted upon we show that in this environment patent rights and cash rewards are complements and that gips are often preferable to patent races or prizes requiring technologies to be placed in the public domain moreover our model uncovers a tendency for patent races to encourage speed of discovery over quality of innovation which can be corrected by gips we explore robustness to endogenous entry costly public funds and incomplete information by gip organizers on the surplus created by the technology

employers discriminatory behavior and the estimation of wage discrimination this paper considers the linkage of empirical estimates of wage discrimination between two groups introduced by oaxaca 1973 to a theoretical model of employers discriminatory behavior it is shown that conditional on different assumptions about employers discriminatory tastes oaxaca s estimators of wage discrimination can be derived that the approach is more generally useful is demonstrated by deriving an alternative estimator of wage discrimination based on the assumption that within each type of labor e g unskilled skilled the utility function capturing employers discriminatory tastes is homogeneous of degree zero with respect to labor inputs from each of the two groups the estimators are compared empirically in an application to male female wage differentials

the structure of a contract and the theory of a non exclusive resource the process of arriving at a useful concept of analysis is not only slow and painful but also may go astray and attain nothing useful someone begins with one example or observation followed by a theory which is intuitively plausible a theoretical term associated with a vague concept is coined examples of a seemingly different type emerge which call for another theory the process goes on as examples and theories continue to accumulate the different categories under the same heading of analysis serve only to confuse and each associated theory becomes ad hoc such has been the fate of the concept of externality a more useful approach i think is via contractual conditions the example chosen for illustration is marine fisheries where the fishing right is taken

rural urban welfare program and labor force participation nonmetro poor in the midwest participate more in the labor force and less in welfare programs than metro poor we formalize how household composition capital labor market conditions and state specific regulations define opportunity sets then estimate a bivariate binomial probit model of work and program participation choices an oaxaca decomposition analysis is conducted to compare differences in characteristics to differences in behavior in explaining the two groups choices we find no behavioral basis for the difference in labor market participation and while most of the lower midwestern nonmetro welfare program participation is due to demographics some is due to different life cycle behavior

risk taking behavior in mutual fund tournaments abstract we develop a two period model of a brown et al j finance 51 1996 85 mutual fund tournament in which two fund managers with unequal midyear performances compete for new cash inflows when one of the managers is an exogenous benchmark winning managers index and losing managers gamble however when both managers are active the winning manager is more likely to gamble expecially when the midyear performance gap is high or when stocks offer high returns and low volatility empirical evidence that winning managers gamble has been documented by other researchers but it has been interpreted as evidence against the tournament model with a dataset of weekly returns from 1984 to 1996 for 660 mutual funds we text for other tournament effects predicted by the model our results suggest a role for the theory of tournaments in studies of mutual fund behavior

harvest uncertainty and the tragedy of the commons abstract this paper demonstrates that a fixed number of risk averse firms faced with harvest uncertainty owing to resource stock uncertainty will typically reduce their exploitation of a commons in addition the total exploitation of the industry will decrease when entry is permitted and uncertainty is compared with certainty this result holds for perfectly competitive output markets and also characterizes imperfectly competitive output markets with linear market demand and risk neutral firms in the latter case the socially optimum number of firms is determined based upon the degree of uncertainty the price elasticity of market demand and the elasticity of input productivity

markets for ideas prize structure entry limits and the design of ideation contests contests are a popular mechanism for the procurement of innovation in marketing design and other creative industries firms use freelance marketplaces to organize contests and obtain high quality ideas for ads new products and even business strategies from participants a central question faced by contest sponsors is how to appropriately structure prizes and entry regulations i develop an empirical model of idea generation ideation contests and investigate the impact of the number of prizes prize amount and submission limit on participation and quality outcomes using data from a popular marketing ideation platform the model explains participant submission decisions jury ratings and sponsor rankings of winning submissions counterfactuals reveal the impact of design parameters on outcomes and provide guidance for the optimal design of ideation contests and platforms

an experimental investigation of research tournaments i introduction research tournaments have played an important role in the economic growth of nations since the earliest stages of the industrial revolution for example the golden age of steam locomotion was spawned by a research tournament sponsored by the liverpool and manchester railway in 1829 1 more recently research tournaments have been used to create a variety of products ranging from fuel efficient refrigerators langreth 1994 and digital televisions economist 1993 to high tech fighter aircraft for the military schwartz et al 1991 today scientists and lawmakers are even considering the use of a research contest to propel the development of the first manned space mission to mars 2 despite the recurring popularity of research tournaments over the last two hundred years the first theoretical model for evaluating their efficiency was not published until taylor s 1995 seminal work taylor s model provides a theoretical basis for evaluating the effect the number of competitors and tournament duration have on the amount of effort expended by contestants in a research tournament taylor proved that by limiting the number of competitors in a research tournament and charging each competitor an entry fee research tournament sponsors can induce an efficient amount of innovative effort fullerton and mcafee 1999 extended research tournament theory to include competitions with heterogeneous contestants showing for a large class of contests the optimal number of competitors is two and sponsors can induce the best qualified competitors to enter the tournament by holding specialized all pay entry auctions although the economic intuition behind these research tournaments is straightforward the empirical calculations required to compute their equilibrium strategies are very complex and it is an empirical question as to whether individuals are able to compute these strategies therefore to investigate the predictive power of research tournament models we conducted a series of laboratory experiments to test taylor s seminal research tournament theory by examining whether subjects in a controlled economic laboratory setting can be induced to expend the predicted amount of research and development rd x 0 each new innovation is drawn with recall from the distribution of innovations allowing each competitor to retain the best draw across all t periods of the tournament

tournament rewards and risk taking this article considers a lazear rosen tournament model where agents can influence both the spread of their output distribution risk taking and its mean the unique equilibrium induces excessive risk taking and a low level of effort by modifying the tournament to give the highest prize to the agent with the most moderate output a low level of risk taking and high level of effort can be sustained as an equilibrium the first result can be useful to understand the relative performance evaluation puzzle of executive compensation and the second result can be useful to understand puzzling workplace norms promoting mediocrity

performance responses to competition across skill levels in rank order tournaments field evidence and implications for tournament design tournaments are widely used in the economy to organize production and innovation we study individual data on 2775 contestants in 755 software algorithm development contests with random assignment the performance response to added contestants varies nonmonotonically across contestants of different abilities precisely conforming to theoretical predictions most participants respond negatively whereas the highest skilled contestants respond positively in counterfactual simulations we interpret a number of tournament design policies number of competitors prize allocation and structure number of divisions open entry and assess their effectiveness in shaping optimal tournament outcomes for a designer

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

risk taking in selection contests abstract we study contests where the strategic variable is the degree of risk taking rather than the amount of effort the selection efficiency of such contests is examined we show that the selection efficiency of a contest may be improved by limiting the competition in two ways by having a small number of contestants and by restricting contestant quality

incentive and sampling effects in procurement auctions with endogenous number of bidders abstract we study an auction contest for a procurement of innovation firms exert effort and the resulting quality of innovation is ex ante uncertain given this uncertainty there is a trade off regarding the number of participating firms in the contest increasing the number of firms reduces each firm s chance of winning the auction leading the firms to reduce effort level meanwhile the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality thus the procurer faces a nontrivial problem of how many firms to invite we show that in the high level of randomness it is optimal for the procurer to invite many firms as the randomness vanishes however inviting only two firms is optimal we also show that a fixed prize tournament may outperform the auction when the randomness is large

status the distribution of wealth private and social attitudes to risk this paper supposes an individual cares about his her own wealth not only directly but also via the relative standing that this wealth induces the implications for risk taking are investigated in particular such a model provides a natural explanation of the concave convex concave utility described by friedman and savage however there are a number of key differences between the present model and any model based on own wealth alone for example an equilibrium wealth distribution here may have a middle class further the status interaction involves an externality and an equilibrium wealth distribution may be pareto inefficient but also about the implied relative standing in the distribution of wealth has a long but checkered history an early exponent of such ideas was of course veblen 1899 it is indeed a notion which most economists reject albeit usually without explicit comment a notable and articulate exception however is frank 1985 for example see also the references frank cites on pp 33 34 it is however a notion with substantial intuitive appeal and it seems useful to ascertain its consequences before coming to a final judgement as to its merits the present paper is concerned with deriving the consequences of such valuation of status for risk taking what seems to be the sharpest possible model is adopted here this assumes that what is essentially ordinal rank in the wealth distribution enters von neumann morgenstern utility as an argument in addi tion to wealth itself thus higher wealth increases utility not only directly but also indirectly via higher status in the interests of both simplicity and drama it is typically assumed here that all individuals have identical utility functions which are concave in wealth but convex in status section 2 discusses how the model provides a natural explanation of the fundamental phenomenon addressed by friedman and savage 1948 that individuals may simultaneously purchase insurance and participate in lotteries although each individual here has a utility function which is concave in wealth itself utility can nevertheless be convex in wealth over some range when the indirect effect via status is included this effect is enhanced by the convexity of utility in status but will follow in any case if increasing wealth entails moving up in status much more rapidly than losing wealth entails moving down it is shown

moral hazard in repeated procurement of services this paper analyzes repeated procurement of services as a two period model with a potential repeated agency relationship in the first period there is an incumbent who provides a service in the second period there is a contest stage in which the principal selects the next service provider the agents effort is non contractible and the contest stage is the mechanism to mitigate potential moral hazard problems the principal takes account of the past service effort in the contest stage by choosing the weight of past effort and the degree of substitutability between past and current efforts the results show that when the principal does not value contest effort considering past effort as the relevant effort in the contest is optimal when the principal values contest effort and effort cost increases decreasing substitutability between efforts is optimal

optimal prize allocation in contests the role of negative prizes abstract in this paper we analyze the role of negative prizes in contest design with a fixed budget risk neutral contestants and independent private abilities the effort maximizing prize allocation rule features a threshold when the highest effort is above the threshold all contestants with lower efforts receive negative prizes these negative prizes are used to augment the prize to the contestant with the highest effort which better incentivizes contestants with higher abilities when no contestant s effort exceeds the threshold all contestants equally split the initial budget or a portion of it to ensure their participation we find that allowing negative prizes can increase the expected total effort dramatically in particular if no bound is imposed on negative prizes the expected total effort can be arbitrarily close to the highest possible effort inducible when all contestants have the maximum ability with certainty the above contest is shown to be the optimal mechanism for a more general class of mechanisms