Equity and effectiveness of optimal taxation in contests under an all-pay auction |
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Authors: | Yosef Mealem Shmuel Nitzan |
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Affiliation: | 1. The School of Banking and Finance, Netanya Academic College, Netanya, 42365, Israel 2. Department of Economics, Bar-Ilan University, Ramat Gan, 52900, Israel
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Abstract: | The means of contest design may include differential taxation of the prize. This paper considers all-pay auctions under complete information and establishes that, given a revenue-maximizing contest designer who faces a balanced-budget constraint, the optimal taxation scheme corresponding to an all-pay auction is appealing in two senses. First, it ensures extreme equitable final prize valuations. Second, it is effective; it yields total contestants’ efforts that are larger than those obtained under almost any pure-strategy equilibrium of a Tullock-type lottery contest. |
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