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Contests with an uncertain number of prizes

François Maublanc and Sébastien Rouillon

Cahiers du GREThA from Groupe de Recherche en Economie Théorique et Appliquée(GREThA)

Abstract: We study multiple-prize contests where the number of prizes to be awarded is a random variable. We determine the symmetric Nash equilibrium of the contest game. We analyze the equilibrium outcome from the perspective of a contest designer aiming at maximizing the aggregate contest expenditure. Assuming that the total value at stake is non-increasing in the number of prizes, we show that the aggregate contest expenditure decreases with the expectation on the number of prizes (first-order stochastic dominance), with the risk in the number of prizes (second-order stochastic dominance), and increases with the number of contestants. We give sufficient conditions such that the same holds under a general specification. Accordingly, a contest designer aiming at maximizing the aggregate contest expenditure should always award a single prize, reveal this information to the contestants and open the contest game to all potential participants.

Keywords: Contest; model; ·; Rent-seeking; ·; Multiple-prizes; ·; Number; uncertainty; ·; Incomplete; information (search for similar items in EconPapers)
JEL-codes: C7 D4 D7 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-gth, nep-mic and nep-ore
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:grt:wpegrt:2019-07

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