Contests with Ex-Ante Target Setting

I study contests in which each player is ranked by a scoring rule based on both her performance and how close this performance is to a private target, set before the contest. Each player’s decision problem is to choose her target when performance is subject to a random component. I analyse the incentive properties of target setting, derive conditions on the primitives such that equilibria exist and characterise the players’ behaviour. I show that target setting generates outcome uncertainty under a large class of conditions. In particular, neither private abilities nor perfectly correlated states are necessary. Target setting, therefore, has important implications in contest design as outcome uncertainty is a salient determinant of consumers’ demand for contests. JEL classification numbers: C70 ; D81 ; D82 ; Z20