Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55338
Authors: 
Mealem, Yosef
Nitzan, Shmuel
Year of Publication: 
2012
Series/Report no.: 
CESifo working paper: Public Choice 3712
Abstract: 
The means of contest design may include differential taxation of the prize. This paper 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 exceptional equitable final prize valuations. Second, it is effective; it yields total contestants' efforts that are larger than those obtained under almost any Tullock-type lottery. Furthermore, when a budget surplus is allowed, the superiority of optimal taxation under the APA is preserved in terms of equity and effectiveness relative to optimal taxation under any contest success function.
Subjects: 
contest design
revenue maximization
balanced-budget constraint
budget surplus
optimal differential taxation
endogenous stakes
all-pay auction
lottery
JEL: 
D70
D72
D74
D78
Document Type: 
Working Paper

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