The Optimal Allocation of Prizes in Contests
American Economic Review · 2001 · Volume 91 · Issue 3
Abstract
We study a contest with multiple, nonidentical prizes. Participants are privately informed about a parameter (ability) affecting their costs of effort. The contestant with the highest effort wins the first prize, the contestant with the second-highest effort wins the second prize, and so on until all the prizes are allocated. The contest's designer maximizes expected effort. When cost functions are linear or concave in effort, it is optimal to allocate the entire prize sum to a single "first" prize. When cost functions are convex, several positive prizes may be optimal.
Keywords
Asymmetric and Private Information, Auctions, Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
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