CARROTS AND STICKS: PRIZES AND PUNISHMENTS IN CONTESTS |
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| Authors: | BENNY MOLDOVANU ANER SELA XIANWEN SHI |
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| Institution: | 1. Moldovanu: Department of Economics, University of Bonn, Lennestr. 37, 53113 Bonn, Germany. E‐mail mold@uni‐bonn.de;2. Sela: Department of Economics, Ben Gurion University, Beer Sheva 84105, Israel. E‐mail anersela@bgu.ac.il |
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| Abstract: | We study optimal contest design in situations where the designer can reward high performance agents with positive prizes and punish low performance agents with negative prizes. We link the optimal prize structure to the curvature of distribution of abilities in the population. In particular, we identify conditions under which, even if punishment is costly, punishing the bottom is more effective than rewarding the top in eliciting effort input. If punishment is costless, we study the optimal number of punishments in the contest. (JEL D44, D82, J31, J41) |
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