Working Paper: CEPR ID: DP9323
Authors: Stefan Jnsson; Armin Schmutzler
Abstract: This paper analyzes how all-pay auctions with endogenous prizes can be used to provide effort incentives. We show that wide classes of effort distributions can be implemented as equilibrium outcomes of such games. We also ask how all-pay auctions have to be structured so as to induce high expected highest efforts without generating excessive wasteful efforts of losers. All-pay auctions with endogenous prizes can do better than all-pay auctions with fixed prizes in this respect, in particular, when the prize function is approximately linear. We use the results to compare patents and prizes as innovation incentives, and to explore promotion incentives in organizations.
Keywords: allpay auctions; contests; endogenous prizes; implementation
JEL Codes: D02; D43; D44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Auction structure (D44) | Effort distributions (D39) |
| AEP (L94) | Expected highest effort (C51) |
| Prize function shape (D44) | Effort levels (D29) |
| AEP (L94) | Expected product quality (L15) |
| Expected highest effort (C51) | Innovation outcomes (O36) |