Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/141440
Authors: 
Llorente-Saguer, Aniol
Sheremeta, Roman M.
Szech, Nora
Year of Publication: 
2016
Series/Report no.: 
WZB Discussion Paper SP II 2016-307
Abstract: 
A well-known theoretical result in the contest literature is that greater heterogeneity decreases performance of contestants because of the "discouragement effect." Leveling the playing field by favoring weaker contestants through bid-caps and favorable tie-breaking rules can reduce the discouragement effect and increase the designer's revenue. We test these predictions in an experiment. Our data show that indeed, strengthening weaker contestants through tie-breaks and bid-caps significantly diminishes the discouragement effect. Bid-caps can also improve revenue. Most deviations from Nash equilibrium can be explained by the level-k model of reasoning.
Subjects: 
all-pay auction
rent-seeking
bid-caps
tie-breaks
contest design
JEL: 
C72
C91
D72
Document Type: 
Working Paper

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