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Allocation Of Prizes In Contests With Participation Constraints

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Author Info

  • Aner Sela

    ()
    (Department of Economics, Ben-Gurion University of the Negev, Israel)

  • Reut Megidish

    ()
    (Ben-Gurion University of the Negev, Israel)

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    Abstract

    We study all-pay contests with an exogenous minimal effort constraint where a player can participate in a contest only if his effort (output) is equal to or higher than the minimal effort constraint. Contestants are privately informed about a parameter (ability) that affects their cost of effort. The designer decides about the size and the number of prizes. We analyze the optimal prize allocation for the contest designer who wishes to maximize either the total effort or the highest effort. It is shown that if the minimal effort constraint is relatively high, the winner-take-all contest in which the contestant with the highest effort wins the entire prize sum does not maximize the expected total effort nor the expected highest effort. In that case, the random contest in which the entire prize sum is equally allocated to all the participants yields a higher expected total effort as well as a higher expected highest effort than the winner-take-all contest.

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    File URL: http://www.ec.bgu.ac.il/monaster/admin/papers/1008.pdf
    File Function: First version, 2010
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    Bibliographic Info

    Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 1008.

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    Length: 24 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:bgu:wpaper:1008

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    Related research

    Keywords: Winner-take-all contests; all-pay auctions; participation constraints.;

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    1. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June.
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