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Relative Performance Prizes and Dynamic Incentives in Best-of-N Contests

Authors
  • Jiang, Xiandeng1
  • 1 Southwestern University of Finance and Economics, School of Public Finance and Taxation, 555, Liutai Avenue, Wenjiang District, Chengdu, Sichuan, 611130, China , Chengdu (China)
Type
Published Article
Journal
Review of Industrial Organization
Publisher
Springer US
Publication Date
Jul 23, 2018
Volume
53
Issue
3
Pages
563–590
Identifiers
DOI: 10.1007/s11151-018-9646-8
Source
Springer Nature
Keywords
License
Yellow

Abstract

This paper introduces a relative performance prize scheme to best-of-N contests. I develop a theoretical model of the best-of-N contest with intermediate prizes that are distributed based on the players’ relative performance. The model predicts that a relative performance prize scheme both increases the players’ level of effort in certain conditions and decreases the performance differential between the winner and the loser in the contest. Empirically, I investigate these theoretical predictions by employing a natural experiment in the group-stage matches of the FIVB (Fédération Internationale de Volleyball) World League and the FIVB World Grand Prix. The results indicate that the introduction of a relative performance prize scheme induces contest participants to intensify their efforts in certain conditions. However, this prize scheme may ultimately result in teams playing fewer sets in matches.

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