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Optimal contests with incomplete information and convex effort costs

Author

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  • Zhang, Mengxi

    (Department of Economics, University of Bonn)

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.

Suggested Citation

  • Zhang, Mengxi, 2024. "Optimal contests with incomplete information and convex effort costs," Theoretical Economics, Econometric Society, vol. 19(1), January.
    • Handle: RePEc:the:publsh:4259
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    References listed on IDEAS

    as
    1. Matthews, Steven A., 1983. "Selling to risk averse buyers with unobservable tastes," Journal of Economic Theory, Elsevier, vol. 30(2), pages 370-400, August.
    2. Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.
    3. Dawei Fang & Thomas Noe & Philipp Strack, 2020. "Turning Up the Heat: The Discouraging Effect of Competition in Contests," Journal of Political Economy, University of Chicago Press, vol. 128(5), pages 1940-1975.
    4. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    5. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
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    Citations

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    Cited by:

    1. Andrzej Baranski & Sumit Goel, 2024. "Contest design with a finite type-space: A unifying approach," Papers 2410.04970, arXiv.org, revised Oct 2024.
    2. Penghuan Yan, 2024. "Balancing Selection Efficiency and Societal Costs in Selective Contests," Papers 2409.09768, arXiv.org, revised Oct 2024.
    3. Thomas Giebe & Oliver Gürtler, 2024. "Player Strength and Effort in Contests," ECONtribute Discussion Papers Series 285, University of Bonn and University of Cologne, Germany.
    4. Deng, Shanglyu & Fu, Qiang & Wu, Zenan & Zhu, Yuxuan, 2024. "Contests with sequential entry and incomplete information," Theoretical Economics, Econometric Society, vol. 19(2), May.

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    More about this item

    Keywords

    Optimal contest; incomplete information; mechanism design;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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