We investigate the relationship between tournament prices and effort choices in the presence of favoritism. High tournament prizes can decrease agents’ effort supply when the choice of the winner is not perfectly objective but affected to some extent by personal preferences of an evaluator.

Kim (1995) provides a sufficient condition to rank information systems when the first-order approach is valid. The basis for the condition is the comparison of the likelihood ratio distributions. I show, first, that Kim’s criterion is not necessary when the limited liability of the agent...

In an agency model with moral hazard and limited liability, we show that the provision of perks can be inefficient, even if perks are contractible. Interestingly, there can be over- as well as underinvestment in perks. We also demonstrate that perks may actually harm the agent, although perks...

I show that the effect of heterogeneity on contest investments depends on the structure of the competition, which implies that heterogeneity matters for optimal contest design. This insight helps to explain empirical evidence on the comparison of different contest structures.

According to the well-known “merger paradox”, in a Cournot market game mergers are generally unprofitable unless most firms merge. The present paper proposes an optimal merger mechanism. With this mechanism mergers are never unprofitable, more profitable than in other known mechanisms, and...

In the standard market-microstructure model of Glosten and Milgrom (1985), public information can have negative social value. Equivalently, an increase in informational asymmetry can raise the total surplus from trade.

An alternative is a Condorcet winner if it beats all other alternatives in a pairwise majority vote. A social choice correspondence is a Condorcet extension if it selects the Condorcet winners–and nothing else–whenever a Condorcet winner exists. It is well known that Condorcet extensions are...

This paper provides an empirical analysis of contracting decisions in the provision of welfare-to-work (WTW) services. Our findings suggest that contracting decisions are predominantly driven by cost considerations, both for the decision to contract with other municipalities and the share of...

When players compete repeatedly, prizes won in earlier contests may improve the players’ abilities in later contests. This paper determines the allocation of prizes within and across contests that maximizes the (weighted) sum of aggregate efforts.

One can restructure institutions, but if individual-level motivations for corrupt behavior are not understood, these restructuring may not be effective. We introduce an evolutionary-game modeling to deal with the problem of corruption driven by imitative behavior.