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Title:Equity and effectiveness of optimal taxation in contests under an all-pay auction PDF Logo
Authors:Mealem, Yosef
Nitzan, Shmuel
Issue Date: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
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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