Social Choice and Welfare

, Volume 38, Issue 3, pp 497–517 | Cite as

Micro foundations of multi-prize lottery contests: a perspective of noisy performance ranking

Original Paper

Abstract

This article proposes a multi-prize noisy-ranking contest model. Contestants are ranked in descending order based on their perceived performance, which is subject to random perturbation, and they are rewarded based on their ranks. Under plausible conditions, we establish that our noisy performance ranking model is stochastically equivalent to the family of multi-prize lottery contests built upon ratio-form contest success functions. We further establish the equivalence of our model to a contest model that ranks contestants by their best performance out of multiple independent attempts. These results therefore shed light on the micro-foundations of the popularly adopted lottery contest models. The “best-shot ranking rule” reveals a common thread that connects a broad class of seemingly disparate competitive activities (such as rent-seeking contests, patent races, research tournaments), and unifies them through a common performance evaluation mechanism.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Amegashie JA (2000) Some results on rent-seeking contests with shortlisting. Public Choice 105: 245–253CrossRefGoogle Scholar
  2. Barut Y, Kovenock D (1998) The symmetric multiple-prize all-pay auction with complete information. Eur J Polit Econ 14: 627–644CrossRefGoogle Scholar
  3. Baye M, Hoppe H (2003) The strategic equivalence of rent-seeking, innovation, and patent-race games. Games Econ Behav 44: 217–226CrossRefGoogle Scholar
  4. Baye M, Kovenock D, de Vries C (2005) Comparative analysis of litigation systems: an auction theoretic approach. Econ J 115: 583–601CrossRefGoogle Scholar
  5. Beggs S, Cardell S, Hausman J (1981) Assessing the potential demand for electric cars. J Econometrics 16: 1–19CrossRefGoogle Scholar
  6. Clark JJ, Riis C (1996a) On the win probability in rent-seeking games, mimeoGoogle Scholar
  7. Clark DJ, Riis C (1996b) A multi-winner nested rent-seeking contest. Public Choice 87: 177–184CrossRefGoogle Scholar
  8. Clark DJ, Riis C (1997) Contest success functions: an extension. Econ Theory 11: 201–204CrossRefGoogle Scholar
  9. Clark DJ, Riis C (1998a) Influence and the discretionary allocation of several prizes. Eur J Polit Econ 14: 605–615CrossRefGoogle Scholar
  10. Clark DJ, Riis C (1998b) Competition over more than one prize. Am Econ Rev 88: 276–289Google Scholar
  11. Dasgupta P, Stiglitz J (1980) Industrial structure and the nature of innovative activity. Econ J 90: 266–293CrossRefGoogle Scholar
  12. Denicolò V, Franzoni LA (2010) On the winner-take-all principle in innovation races. J Eur Econ Assoc 8(5): 1133–1158CrossRefGoogle Scholar
  13. Fu Q, Lu J (2009a) The beauty of bigness: on optimal design of multi-winner contests. Games Econ Behav 66: 146–161CrossRefGoogle Scholar
  14. Fu Q, Lu J (2009b) The optimal multiple-stage contest. Econ Theory (forthcoming)Google Scholar
  15. Fullerton RL, McAfee RP (1999) Auctioning entry into tournaments. J Polit Econ 107: 573–605CrossRefGoogle Scholar
  16. Glazer A, Hassin R (1988) Optimal contests. Econ Inq 26: 133–143CrossRefGoogle Scholar
  17. Hann IH, Hui KL, Lee T, Png IP (2008) Consumer privacy and marketing avoidance: a static model. Manage Sci 54(6): 1094–1103CrossRefGoogle Scholar
  18. Hirshlefer J, Riley JG (1992) The analysis of uncertainty and information. Cambridge University Press, Cambridge, UKGoogle Scholar
  19. Jia H (2008) A stochastic derivation of the ratio form of contest success functions. Public Choice 135: 125–130CrossRefGoogle Scholar
  20. Konrad K (2009) Strategy and dynamics in contests. Oxford University Press, OxfordGoogle Scholar
  21. Lazear EP, Rosen S (1981) Rank-order tournaments as optimum labor contracts. J Polit Econ 89: 841–864CrossRefGoogle Scholar
  22. Luce RD (1959) Individual choice behavior. Wiley, New YorkGoogle Scholar
  23. Luce RD, Suppes P (1965) Preference, utility, and subjective probability. In: Luce RD, Bush RR, Galanter E (eds) Handbook of mathematical psychology, vol III. John Wiley and Sons, New YorkGoogle Scholar
  24. McFadden D (1973) Conditional Logit Analysis of Qualitative Choice Behavior. In: Zarembka P (eds) Frontier in econometrics. Academic, New YorkGoogle Scholar
  25. McFadden D (1974) The measurement of urban travel demand. J Public Econ 3: 303–328CrossRefGoogle Scholar
  26. Moldovanu B, Sela A (2001) The optimal allocation of prizes in contests. Am Econ Rev 91: 542–558CrossRefGoogle Scholar
  27. Moldovanu B, Sela A, Shi X (2007) Contests for status. J Polit Econ 115: 338–363CrossRefGoogle Scholar
  28. Morgan J, Várdy F (2007) The value of commitment in contests and tournaments when observation is costly. Games Econ Behav 60: 326–338CrossRefGoogle Scholar
  29. Siegel R (2009) All-pay contests. Econometrica 77(1): 71–92CrossRefGoogle Scholar
  30. Skaperdas S (1996) Contest success function. Econ Theory 7: 283–290Google Scholar
  31. Szymanski S, Valletti TM (2005) Incentive effects of second prizes. Eur J Polit Econ 21: 467–481CrossRefGoogle Scholar
  32. Wärneryd K (2000) In defense of lawyers: moral hazard as an aid to cooperation. Games Econ Behav 33: 145–158CrossRefGoogle Scholar
  33. Yates AJ, Heckelman JC (2001) Rent-setting in multiple winner rent-seeking contests. Eur J Polit Econ 17: 835–852CrossRefGoogle Scholar
  34. Yellott JI (1977) The relationship between Luce’s choice axiom, thurstone’s theory of comparative judgment, and the double exponential distribution. J Math Psychol 15: 109–177CrossRefGoogle Scholar
  35. Yildirim H (2005) Contests with multiple rounds. Games Econ Behav 51: 213–227CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Department of Strategy and PolicyNational University of SingaporeSingaporeSingapore
  2. 2.Department of EconomicsMonash UniversityClaytonAustralia
  3. 3.Department of EconomicsNational University of SingaporeSingaporeSingapore

Personalised recommendations