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Contingent Payments In Procurement Interactions - Experimental Evidence, Matthew J. Walker, Jason Shachat, Lijia Wei
Contingent Payments In Procurement Interactions - Experimental Evidence, Matthew J. Walker, Jason Shachat, Lijia Wei
ESI Working Papers
A primary objective of creating competition among suppliers is the procurement of higher quality goods and services at lower prices. When procuring non-standard goods, it is often difficult to write a complete specification of desired quality in the contract. Thus, payments to suppliers cannot be perfectly conditioned on the quality provided. We propose a correlated contingent payment contract to mitigate the supplier moral hazard problem while retaining competitive supplier selection based on price. We treat the probability of implementing contingent payments as probabilistic. The selected supplier’s payment is, according to a fixed probability, either the amount of their bid or …
A Bias Aggregation Theorem, Mark Schneider
A Bias Aggregation Theorem, Mark Schneider
ESI Working Papers
In a market where some traders are rational (maximize expected utility) and others are systematically biased (deviate from expected utility due to some bias parameter, q), do equilibrium prices necessarily depend on q? In this note, focusing on the case where there is an aggregate and systematic bias in the population, we show that market prices can still be unbiased. Hence, we establish that systematically biased agents do not necessarily imply biased market prices. We show that the parametric model we use also predicts observed deviations from expected utility in laboratory and market environments.
Resource Allocation Contests: Experimental Evidence, Robert Shupp, Roman M. Sheremeta, David Schmidt, James Walker
Resource Allocation Contests: Experimental Evidence, Robert Shupp, Roman M. Sheremeta, David Schmidt, James Walker
ESI Working Papers
Many resource allocation contests have the property that individuals undertake costly actions to appropriate a potentially divisible resource. We design an experiment to compare individuals’ decisions across three resource allocation contests which are isomorphic under risk-neutrality. The results indicate that in aggregate the single-prize contest generates lower expenditures than either the proportional-prize or the multi-prize contest. Interestingly, while the aggregate results indicate similar behavior in the proportional-prize and multi-prize contests, individual level analysis indicates that the behavior in the single-prize contest is more similar to the behavior in the multi-prize contest than in the proportional-prize contest. We also elicit preferences …
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
Multi-Battle Contests: An Experimental Study, Shakun D. Mago, Roman M. Sheremeta
ESI Working Papers
This study examines behavior of subjects in simultaneous and sequential multi-battle contests. In simultaneous contests, subjects make positive bids in each battle 80% of the time and bids fall within the predicted boundaries. However, 35% of the time subjects make positive bids in only two, instead of all three, battles and they significantly overuse moderately high bids. In sequential contests, theory predicts sizable bids in the first battle and no bids in the subsequent battles. Contrary to this prediction, subjects significantly underbid in the first battle and overbid in subsequent battles. Consequently, instead of always ending in the second battle, …
Winner-Take-All And Proportional-Prize Contests: Theory And Experimental Results, Roman M. Sheremeta, William A. Masters, Timothy N. Cason
Winner-Take-All And Proportional-Prize Contests: Theory And Experimental Results, Roman M. Sheremeta, William A. Masters, Timothy N. Cason
ESI Working Papers
This study provides a unified theoretical and experimental framework in which to compare three canonical types of competition: winner-take-all contests won by the best performer, winner-take-all lotteries where probability of success is proportional to performance, and proportional-prize contests in which rewards are shared in proportion to performance. We introduce random noise to reflect imperfect information, and collect independent measures of risk aversion, other-regarding preferences, and the utility of winning a contest. The main finding is that efforts are consistently higher with winner-take-all contests. The lottery contests have the same Nash equilibrium as proportional prizes, but induce contestants to choose higher …
Entry Into Winner-Take-All And Proportional-Prize Contests: An Experimental Study, Timothy N. Cason, William A. Masters, Roman M. Sheremeta
Entry Into Winner-Take-All And Proportional-Prize Contests: An Experimental Study, Timothy N. Cason, William A. Masters, Roman M. Sheremeta
ESI Working Papers
This experiment compares the performance of two contest designs: a standard winnertake- all tournament with a single fixed prize, and a novel proportional-payment design in which that same prize is divided among contestants by their share of total achievement. We find that proportional prizes elicit more entry and more total achievement than the winner-take-all tournament. The proportional-prize contest performs better by limiting the degree to which heterogeneity among contestants discourages weaker entrants, without altering the performance of stronger entrants. These findings could inform the design of contests for technological and other improvements, which are widely used by governments and philanthropic …
Contest Design: An Experimental Investigation, Roman M. Sheremeta
Contest Design: An Experimental Investigation, Roman M. Sheremeta
ESI Working Papers
This paper experimentally compares the performance of four simultaneous lottery contests: a grand contest, two multiple prize settings (equal and unequal prizes), and a contest which consists of two subcontests. Consistent with the theory, the grand contest generates the highest effort levels among all simultaneous contests. In multi-prize settings, equal prizes produce lower efforts than unequal prizes. The results also support the argument that joint contests generate higher efforts than an equivalent number of subcontests. Contrary to the theory, there is significant over-dissipation. This over-dissipation can be partially explained by strong endowment size effects. Subjects who receive higher endowments tend …
Experimental Comparison Of Multi-Stage And One-Stage Contests, Roman M. Sheremeta
Experimental Comparison Of Multi-Stage And One-Stage Contests, Roman M. Sheremeta
ESI Working Papers
This article experimentally studies a two-stage elimination contest and compares its performance with a one-stage contest. Contrary to the theory, the two-stage contest generates higher revenue than the equivalent one-stage contest. There is significant over-dissipation in both stages of the two-stage contest and experience diminishes over-dissipation in the first stage but not in the second stage. Our experiment provides evidence that winning is a component in a subject’s utility. A simple behavioral model that accounts for a non-monetary utility of winning can explain significant over-dissipation in both contests. It can also explain why the two-stage contest generates higher revenue than …