Optimal Contest Design: A General Approach
Shuo Liu and
Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft
We consider the design of contests for n agents when the principal can choose both the prize profile and the contest success function. Our framework includes Tullock contests, Lazear-Rosen tournaments and all-pay contests as special cases, among others. We show that the optimal contest has an intermediate degree of competitiveness in the contest success function, and a minimally competitive prize profile with n-1 identical prizes. The optimum can be achieved with a nested Tullock contest. We extend the model to allow for imperfect performance measurement and for heterogeneous agents. We relate our results to a recent literature which has asked similar questions but has typically focused on the design of either the prize profile or the contest success function.
Keywords: contest design; optimal contests; tournaments (search for similar items in EconPapers)
JEL-codes: D02 D82 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp2011
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