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Allocation of Prizes in Contests with Participation Constraints

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  • Megidish, Reut
  • Sela, Aner
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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 necessarily 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 is a legitimate alternative to the winner-take-all contest.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7580.

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    Date of creation: Nov 2009
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    Handle: RePEc:cpr:ceprdp:7580

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    Related research

    Keywords: all-pay contests; Participation constraints;

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    References

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    1. Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
    2. Paul Schweinzer & Ella Segev, 2012. "The optimal prize structure of symmetric Tullock contests," Public Choice, Springer, vol. 153(1), pages 69-82, October.
    3. Kaplan, T.R. & Luski, I. & Wettstein, D., 2000. "Innovative Activity and Sunk Cost," Papers 2000-6, Tel Aviv.
    4. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
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