Optimal Contest Design: Tuning the Heat

Igor Letina, Shuo Liu and Nick Netzer

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We consider the design of contests when the principal can choose both the prize profile and how the prizes are allocated as a function of a possibly noisy signal about the agents efforts. We provide sufficient conditions that guarantee optimality of a contest. Optimal contests have a minimally competitive prize profile and an intermediate degree of competitiveness in the contest success function. Whenever observation is not too noisy, the optimum can be achieved by an all-pay auction with a cap. When observation is perfect, the optimum can also be achieved by a nested Tullock contest. 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)
Date: 2020-05
New Economics Papers: this item is included in nep-des and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal contest design: Tuning the heat (2023)
Working Paper: Optimal Contest Design: Tuning the Heat (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp2011

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