||In this article we found that different examinees’’ ability distribution and admission quota combinations will lead different competition between different type competitors, so different type examinees will choose different efforts in equilibrium. Besides when item discrimination decrease will not always reduce examinees’’ efforts, it just depends on the examinees’’ ability distribution and admission quota combinations.|
When naive firm becomes smart firm the higher ability examinees will reduce their expected utility, but lower ability examinees will increase their expected utility. However both type examinees will reduce their efforts in the equilibrium.
When admission quota increase different type examinees will choose different actions in different ability distribution, but lower ability examinees will always choose higher efforts than higher ability examinees.
In comparative static analysis we found that examinees’’ ability distribution, admission quota, and firm’’s evaluation do not change the result. In all cases, when higher ability examinees’’ ability and examinees’’ risk averse index increase will cause both type examinees increase their expected utility and efforts in equilibrium.
When lower ability examinees’’ ability and examinees’’ marginal cost of effort increase will cause both type examinees decrees their expected utility and efforts in equilibrium.
||Dixit, Avinash (1987), “Strategic behavior in contests”, The American Economic Review, 77(5), 891–898.|
Eriksson, Tor (1999), “Executive compensation and tournament theory: Empirical tests on danish data”, Journal of Labor Economics, 17(2), 262–280.
Green, Jerry R. and Stokey, Nancy L. (1983), “A comparison of tournaments and contracts”, The Journal of Political Economy, 91(3), 349–364.
Kalra, Ajay and Shi,Mengze (2001), “Designing optimal sales contests: A theoretical perspective”,Marketing Science, 20(2), 170–193.
Lazear, Edward P. (1989), “Pay equality and industrial politics”, The Journal of Political Economy, 97(3), 561–580.
Lazear, Edward P. and Rosen, Sherwin (1981), “Rank-order tournaments as optimum labor contracts”, Journal of Ploitical Economy, 89(5).
Lin, Ming-Jen (2008), “External market condition and tournamets: Theory and evidence”, Economics Letters, 99, 75–78.
Lynch, James G. (2005), “The effort effects of prizes in the second half of tournaments”, Journal of Economic Behavior and Organization, 57, 115–129.
Moldovanu, Benny and Sela, Aner (2001), “The optimal allocation of prizes in contests”, The American Economic Review, 91(3), 542–558.
Nalebuff, Barry J. and Stiglitz, Joseph E. (1983), “Prizes and incentives: towards a general theory of compensation and competition”, The Bell Journal of Economics, 14(1), 21–43.