Optimal Contests with Incomplete Information and Convex Effort Costs

Mengxi Zhang ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: I investigate the design of effort-maximizing mechanisms when agents have both private information and convex effort costs, and the designer has a fixed prize budget. I first demonstrate that it is always optimal for the designer to utilize a contest with as many participants as possible. Further, I identify a necessary and sufficient condition for the winner-takes-all prize structure to be optimal. When this condition fails, the designer may prefer to award multiple prizes of descending sizes. I also provide a characterization of the optimal prize allocation rule for this case. Finally, I illustrate how the optimal prize distribution evolves as the contest size grows.

Pages: 43
Date: 2023-04
New Economics Papers: this item is included in nep-des and nep-mic
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Citations: View citations in EconPapers (1)

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