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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. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    2. Matthews, Steven A., 1983. "Selling to risk averse buyers with unobservable tastes," Journal of Economic Theory, Elsevier, vol. 30(2), pages 370-400, August.
    3. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    4. Baisa, Brian, 2017. "Auction design without quasilinear preferences," Theoretical Economics, Econometric Society, vol. 12(1), January.
    5. 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.
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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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