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Effect of reimbursement on all-pay auction

Author:
Minchuk, Yizhaq
Source:
Economics letters 2018 v.172 pp. 28-30
ISSN:
0165-1765
Subject:
auctions, income, technology
Abstract:
We study all-pay auctions with winners’ reimbursement. This study is conducted under incomplete information with non-linear effort functions. We show that when the cost of effort is concave, the expected revenue in all-pay auctions with reimbursement is higher than the expected revenue in all-pay auctions without reimbursement. However, when the cost of effort is convex, the expected revenue in all-pay auctions without reimbursement is higher. The results of this paper supply a justification to apply reimbursement in contests as part of a mechanism to increase expected revenue. This is especially true in contests where applying new technologies results in decreasing the marginal costs of efforts.
Agid:
6114907