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Optimal prize-rationing strategy in all-pay contests with incomplete information

Xuyuan Liu and Jingfeng Lu ()

International Journal of Industrial Organization, 2017, vol. 50, issue C, 57-90

Abstract: A contest organizer (e.g., a government regulatory agency) is endowed with the capacity to provide unlimited homogeneous prizes (e.g., medals) that he can use to incentivize contestants to exert productive effort in an all-pay auction with incomplete information. Each agent, at most, wins one prize. We study the optimal number of prizes the organizer should grant in order to induce maximal expected total effort or expected highest effort from agents. Both are single peaked under mild regularity conditions. When players’ abilities follow a family of beta distributions, expected highest effort maximization requires a smaller set of prizes to be awarded; for both goals, the optimal number of prizes weakly increases when the pool of contestants expands or contestant quality improves.

Keywords: Multi-prize contest; Prize rationing; All-pay auction; Incomplete information (search for similar items in EconPapers)
JEL-codes: C72 D72 D74 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:indorg:v:50:y:2017:i:c:p:57-90