Optimal contests with incomplete information and convex effort costs

Mengxi Zhang ()
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Mengxi Zhang: Department of Economics, University of Bonn

Theoretical Economics, 2024, vol. 19, issue 1

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.

Keywords: Optimal contest; incomplete information; mechanism design (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2024-01-26
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Citations: View citations in EconPapers (5)

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