The optimal design of rewards in contests

Todd Kaplan and David Wettstein ()

Review of Economic Design, 2015, vol. 19, issue 4, 327-339

Abstract: Using contests to generate innovation has been 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 $$c(x)/(c^{\prime }(x)-\beta )$$ c ( x ) / ( c ′ ( x ) - β ) where c is the cost of producing an innovation of level x and $$\beta $$ β is the weight attached by the designer to the sum of efforts. 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. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Contests; Innovation; All-pay auctions; Mechanism design; C70; D44; L12; O32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10058-015-0179-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Optimal Design of Rewards in Contests (2010)
Working Paper: The optimal design of rewards in contests (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reecde:v:19:y:2015:i:4:p:327-339

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10058

DOI: 10.1007/s10058-015-0179-4

Access Statistics for this article

Review of Economic Design is currently edited by Atila Abdulkadiroglu, Fuhito Kojima and Tilman Börgers

More articles in Review of Economic Design from Springer, Society for Economic Design
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().