Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Bergen, Department of Economics
No 09/05: Outsourcing in Contests
Frode Meland () and Odd Rune Straume ()
Additional contact information
Frode Meland: Herman Fossgt. 6, N-5007 Bergen, Norway, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway
Odd Rune Straume: University of Bergen and Stein Rokkan Centre for Social Studies, Postal: Department of Economics, Hermann Fossgt. 6, N-5007 Bergen, Norway
Abstract: We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless there are very few contestants and/or the ex-post bargaining strength of the contest winner is sufficiently low. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.
Keywords: Contests; Outsourcing; Bargaining; Contest design
28 pages, April 5, 2005
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