Reimbursement as a tool to reduce sabotaging in rent‐seeking contests

We study standard rent‐seeking contests with reimbursement and sabotaging. This study is conducted for a symmetric model with complete information. We show that changing the contest mechanism by applying a form of reimbursement could be an effective tool against sabotaging, in addition to the fact that it increases contest designer revenue. Simple changes such as sufficient reimbursement to winners/losers might completely stop sabotaging efforts in the contest.     

Incentives and Selection in Promotion Contests: Is It Possible to Kill Two Birds with One Stone?

This paper investigates whether a designer can improve both the incentive provision and the selection performance of a promotion contest by making the competition more (or less) dynamic. A comparison of static (one‐stage) and dynamic (two‐stage) contests reveals that this is not the case. A structural change that improves the performance in one dimension leads to a deterioration in the other dimension. This suggests that modifications of the contest structure are an alternative to strategic handicaps. A key advantage of structural handicaps over participant‐specific ones is that the implementation of the former does not require prior identification of worker types. Copyright © 2014 John Wiley & Sons, Ltd.     

Tullock and Hirshleifer: a meeting of the minds

We introduce the serial contest by building on the desirable properties of two prominent contest games. This family of contest games relies both on relative efforts (as Tullock’s proposal) and on absolute effort differences (as difference-form contests). An additional desirable feature is that the serial contest is homogeneous of degree zero in contestants’ efforts. The family is characterized by a parameter representing how sensitive the outcome is to contestants’ efforts. It encompasses as polar cases the (fair) lottery and the (deterministic) all-pay auction. Equilibria have a close relationship to those of the (deterministic) all-pay auction and important properties of the latter hold for the serial contest, too.      

Equivalence of optimal noisy-ranking contests and Tullock contests

We analyze a noisy-ranking contest in which participants compete in several dimensions. The organizer randomly samples a number of dimensions and awards a prize to the most productive agent. When the contest is optimally designed, we establish a structural equivalence between this family of noisy-ranking contests and contests built upon Tullock contest success functions. Our result also shows that in this class of noisy-contests, the profit-maximization problem of the planner can be turned into a stochastic choice problem for a planner who has some deterministic preferences over the contestants’ win probabilities.     

The retention of CEOs that make poor acquisitions

Does the failure to replace CEOs following a bad takeover represent a cost-effective strategy or a failure of boards of directors and the market? We study 104 white knight contests to examine why poorly performing firms retain their CEOs. We find the majority are poor performers before they enter the control contest (q?相似文献   

Tender Offers, Proxy Contests, and Large-Shareholder Activism

The paper analyzes tender offers and proxy contests as alternative means of resolving corporate governance conflicts between dissidents and incumbent management. We show that when a dissident shareholder is sufficiently confident about the potential benefits from changing corporate policy, he will seek majority control by making a tender offer rather than initiating a proxy contest. When the dissident is relatively uninformed, however, he may opt for a proxy contest, thereby utilizing the information of other shareholders to implement the better policy. Consistent with empirical evidence, the model predicts that announcements of tender offers will tend to be associated with larger positive stockprice reactions than announcements of proxy contests. The model is easily extended to allow for promanagement bias in proxy voting by institutional investors. Empirical observations that have been viewed as evidence of such promanagement bias are shown to be quite consistent with the absence of such bias. Policy issues are discussed as well. An interesting result is that even policies targeted at reducing the costs of conducting proxy contests may have ambiguous social consequences, given the possibility of substitution between tender offers and proxy contests.     

“Reverse” nested lottery contests

This paper proposes a multi-prize “reverse” nested lottery contest model, which can be viewed as the “mirror image” of the conventional nested lottery contest of  Clark and Riis (1996a). The reverse-lottery contest model determines winners by selecting losers based on contestants’ one-shot effort through a hypothetical sequence of lotteries. We provide a microfoundation for the reverse-lottery contest from a perspective of (simultaneous) noisy performance ranking and establish that the model is underpinned by a unique performance evaluation rule. We further demonstrate that the noisy-ranking model can be interpreted intuitively as a “worst-shot” contest, in which contestants’ performances are evaluated based on their most severe mistakes. The reverse-lottery contest model thus depicts a great variety of widely observed competitive activities of this nature. A handy closed-form solution for a symmetric equilibrium of the reverse-lottery contest is obtained. We show that the winner-take-all principle continues to hold in reverse-lottery contests. Moreover, we find that a reverse-lottery contest elicits more effort than a conventional lottery contest whenever the prizes available to contestants are relatively scarce.     

Problem-solving effort and success in innovation contests: The role of national wealth and national culture

Innovation contests allow firms to harness specialized skills and services from globally dispersed participants for solutions to business problems. Such contests provide a rich setting for operations management (OM) scholars to explore problem solving in global labor markets as firms continue to unbundle their innovation value chains. In this study, we examine the implications of specific types of diversity in innovation contests on problem-solving effort and success. First, we conceptualize diversity among contestants in terms of national wealth (measured as gross domestic product per capita (GDPP) adjusted for purchasing power parity) and national culture (measured using the culture dimensions of performance orientation and uncertainty avoidance) and examine how such factors influence problem-solving effort. Next, we examine how differences between contestants and contest holders in terms of the above factors influence contest outcomes. Using data from a popular online innovation contest platform and country-level archival data, we find that contestants from countries with lower levels of GDPP are more likely to exert greater problem-solving effort compared to other contestants. With regard to national culture, we find that performance orientation and uncertainty avoidance have positive and negative effects, respectively, each of which weakens with increasing levels of GDPP. Finally, our analysis provides evidence of homophily effects indicating that contestants who share greater similarities with the contest holder in terms of national wealth and national culture are more likely to be successful in a contest. We discuss the implications of the study's findings for contest holders and platform owners who organize innovation contests, and for emerging research on innovation contests.     

Contests with investment

Perfectly discriminating contests (all pay auctions) are widely used as a model of situations where individuals devote resources to win some prize. In reality such contests are often preceded by investments of the contestants into their ability to fight in the contest. This paper studies a two stage game where in the first stage, players can invest to lower their bid cost in a perfectly discriminating contest, which is played in the second stage. Different assumptions on the timing of investment are studied. With simultaneous investments, equilibria in which players play a pure strategy in the investment stage are asymmetric, exhibit incomplete rent dissipation, and expected effort is reduced relative to the game without investment. There also are symmetric mixed strategy equilibria with complete rent dissipation. With sequential investment, the first mover always invests enough to deter the second mover from investing, and enjoys a first mover advantage. I also look at unobservable investments and endogenous timing of investments. Copyright © 2007 John Wiley & Sons, Ltd.     

A process approach to understanding multiple open source innovation contests – Assessing the contest structures,execution, and participant responses in the android developer challenges

As organizations recognize the importance of open innovation, understanding emerging mechanisms for soliciting outside participation is a growing area of academic interest. Strategies can be as diverse as hosting innovation contests, sponsoring open source software (OSS) communities, or engaging in bilateral partnerships. While these have been studied as distinct strategies, more recent work has identified the possibility for combining these approaches, or deploying different methods at different times. Because each of these open innovation strategies are characterized by different incentive systems as well as different work and social practices, the combination of these can reveal unexpected participant responses (e.g., collaboration in innovation contests, competitive behavior in OSS communities). This study examines an explicit attempt to combine these strategies, to host an open source innovation contest. Through the case of Google's Android Developer Challenge, a series of multi-million dollar innovation contests used to launch an OSS community over several years, this study utilized a process approach to understanding open source innovation contests to understand how participants responded and also how the contest conditions changed over time. We found several practices of competition and collaboration that worked around the short term and long term incentives and constraints posed by the contest. We also followed the contest through various transition phases and found that participants reacted strongly to changes in structure, execution, and shifting conditions over time. Through this case, we extend our understanding of innovation contests as a process and specifically the promises and pitfalls of open source innovation contests.     

Contests over joint production on networks

We consider a network of heterogeneous agents where each edge represents a two‐player contest between the respective nodes. In these bilateral contests, agents compete over an endogenous prize jointly produced using their own contest efforts. We provide a necessary and sufficient condition for the existence of Nash equilibrium and characterize the equilibrium total effort for every agent. Our model has insightful results regarding the network type, that is, depending on whether the network is bipartite or nonbipartite. Finally, considering the sum of all expected utilities as an efficiency notion, we investigate the optimal network structure.     

Optimal contest design under reverse-lottery technology

In this paper, we study effort-maximizing contest design under the “reverse” nested lottery contest model of Fu et al. (2014) — which is the “mirror image” of the conventional nested lottery contest of Clark and Riis (1996). We show that under the reverse-lottery technology, a single-stage winner-take-all grand contest dominates all other feasible designs when the contest is sufficiently noisy. This result is in dramatic contrast to the conventional wisdom on the optimality of multistage elimination contests that is grounded under the conventional nested lottery contest technology in the literature. In the framework of a noisy-performance ranking model, the conventional and reverse models differ only in the noise on players’ performance. Our study therefore reveals the important role that the noise term plays in modeling imperfectly discriminatory contests.     

Efficient Contests

In their seminal contribution, Lazear and Rosen (1981) show that wages based upon rank induce the same efficient effort as incentive‐based reward schemes. They also show that this equivalence result is not robust toward heterogeneity in worker ability, as long as ability is private information because it is not possible to structure contests to simultaneously satisfy self‐selection constraints and first‐best incentives. This paper demonstrates that efficiency can be achieved by a simple modification of the prize scheme in a mixed (heterogenous) contest where contestants learn their type after entry. If contestants know their type before entering the contest, rent extraction becomes an issue. Implications for optimal contest design are also explored. Finally, the relationship between effort maximizing contests and profit maximizing contests are discussed.     

Sad-Loser contests

We consider asymmetric winner-reimbursed contests. It turns out that such contests (Sad-Loser) have multiple internal pure-strategy equilibria (where at least two players are active). We describe all equilibria and discuss their properties. In particular, we find (1) that an active player is indifferent among all her non-negative choices and her expected payoff is zero in any internal equilibrium, (2) that a higher-value (stronger) player always spends less than a lower-value (weaker) player and therefore always has a lower chance to win a Sad-Loser contest in any internal equilibrium, and (3) a sufficient condition for a net total spending to be higher in a Sad-Loser contest than in the corresponding asymmetric contest.     

Entry regulations and optimal prize allocation in parallel contests

Review of Economic Design - In parallel contests, the contest organizer controls the entry of heterogeneous contestants by regulating access to the contests and determining the prize allocation...     

Time Discounting in Strategic Contests

In many contests, such as political campaigns or R&D expenditures, there is at least some trade‐off between immediate money outlay and potential future benefits. This timing aspect has mostly been ignored by the contest literature. If contestants exhibit a strong present bias, such as that shown by past individual choice experiments, then benefits that are deferred to the future will lead to a significant drop in investment. This paper uses controlled laboratory experiments to explore how the timing of prize payment impacts behavior in a contest with a unique Nash equilibrium strategy. We find no evidence that people significantly discount future prizes in our contests, despite the fact that we do replicate present bias in a separate individual choice experiment.     

When does universal peace prevail? Secession and group formation in conflict

This paper analyzes secession and group formation in the general model of contests due to Esteban and Ray (1999). This model encompasses as special cases rent seeking contests and policy conflicts, where agents lobby over the choice of a policy in a one-dimensional policy space. We show that in both models the grand coalition is the efficient coalition structure and agents are always better off in the grand coalition than in a contest among singletons. Individual agents (in the rent seeking contest) and extremists (in the policy conflict) only have an incentive to secede when they anticipate that their secession will not be followed by additional secessions. Incentives to secede are lower when agents cooperate inside groups. The grand coalition emerges as the unique subgame perfect equilibrium outcome of a sequential game of coalition formation in rent seeking contests. Received: March 2004, Accepted: October 2004, JEL Classification: D72, D74 We thank Joan Maria Esteban, Kai Konrad, Debraj Ray, Stergios Skaperdas and two anonymous referees for helpful comments on the paper. We also benefitted from comments by seminar participants in Barcelona, Istanbul, Paris and WZB Berlin.     

Contingent payments in selection contests

The early literature on research contests stressed the advantages of a fixed prize in inspiring R&D effort. More recently the focus has moved towards endogenizing the rewards to research activity in these tournament settings, since this can induce extra effort or enhance the surplus of the buyer. We focus on a research contest as a means of selecting a partner for an R&D enterprise, in an informational setting in which the established providers of R&D services know more about each others’ relative capabilities than does the buyer/sponsor. An alternative use of our model is in choosing between prospective patentees where the Patent Trading Office has less information on the patents than the competitors. This asymmetry creates a source of inefficiency if a rank order contest is used as a selection device; we show how the contest can be modified to improve selection efficiency, while maintaining its simplicity (as only ordinal information is required). The modification that we suggest involves endogenizing the prizes that are awarded contingent upon whether a contestant wins or loses the contest. Furthermore, the payment system and the selection mechanism are detail-free. This paper is part of the project “The Knowledge-Based Society” sponsored by the Research Council of Norway (project 172603/V10).     

Emotions in litigation contests

This paper introduces the concept of emotions into the standard litigation contest. Positive or negative emotions emerge when litigants either win or lose at trial and depend in particular on the level of defendant fault. Our findings establish that standard results of litigation contests change significantly when emotions are taken into account. We show that emotions may increase or decrease individual and total equilibrium contest effort, introduce an asymmetry into the contest, and reinforce or weaken a plaintiff’s incentives to bring a suit. In addition, we consider how emotions impact on justice.