The Cooperative Consequences of Contests

Abstract

Although contests are recognized theoretically as a highly effective method of motivation, the competitive nature of contests may generate unintended negative effects on social interactions in more general settings beyond contests. Using a laboratory experiment of real effort tasks with treatments varying by compensation schemes (all-pay auction contest, Tullock contest, proportional prize contest, and piece rate payment scheme), we test the relative effect of contest formats on pro-social behavior as measured by choices in social dilemma games. Compared to a ranking of compensation schemes based on the correspondence between effort exerted and reward received, our results provide relatively stronger support for the idea that cooperative behavior after a competition is tied to the potential for obtaining ‘fair’ payoff outcomes within the contest. Our random re-matching experimental design ensures that our findings do not result from subjects’ rivalry towards specific competitors, but rather represents a more fundamental shift in prosocial attitude. The results have managerial consequences for structuring incentives in the workplace when a combination of competition and cooperation is necessary among workers.