Optimal contest design: Tuning the heat
Igor Letina,
Shuo Liu and
Nick Netzer
Journal of Economic Theory, 2023, vol. 213, issue C
Abstract:
We consider the design of contests when the principal can choose both the prize profile and how the prizes are allocated as a function of a possibly noisy signal about the agents' efforts. We provide sufficient conditions that guarantee optimality of a contest. Optimal contests have a minimally competitive prize profile and an intermediate degree of competitiveness in the contest success function. Whenever observation is not too noisy, the optimum can be achieved by an all-pay contest with a cap. When observation is perfect, the optimum can also be achieved by a nested Tullock contest. We relate our results to a recent literature which has asked similar questions but has typically focused on the design of either the prize profile or the contest success function.
Keywords: Contest design; Optimal contests; Tournaments (search for similar items in EconPapers)
JEL-codes: D02 D82 M52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:213:y:2023:i:c:s0022053123000121
DOI: 10.1016/j.jet.2023.105616
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