The optimal design of rewards in contests

Todd Kaplan and David Wettstein (wettstn@bgu.ac.il)

MPRA Paper from University Library of Munich, Germany

Abstract: Using contests to generate innovation has and is widely used. Such contests often involve offering a prize that depends upon the accomplishment (effort). Using an all-pay auction as a model of a contest, we determine the optimal reward for inducing innovation. In a symmetric environment, we find that the reward should be set to c(x)/c′(x) where c is the cost of producing an innovation of level x. In an asymmetric environment with two firms, we find that it is optimal to set different rewards for each firm. There are cases where this can be replicated by a single reward that depends upon accomplishments of both contestants.

Keywords: contests; innovation; mechanism design. (search for similar items in EconPapers)
JEL-codes: C70 D44 L12 O32 (search for similar items in EconPapers)
Date: 2010-12-05
New Economics Papers: this item is included in nep-ino, nep-ipr and nep-pr~
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The optimal design of rewards in contests (2015)
Working Paper: The Optimal Design of Rewards in Contests (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27397

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