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The Optimal Allocation of Prizes in Contests

  • Benny Moldovanu
  • Aner Sela

We study a contest with multiple, nonidentical prizes. Participants are privately informed about a parameter (ability) affecting their costs of effort. The contestant with the highest effort wins the first prize, the contestant with the second-highest effort wins the second prize, and so on until all the prizes are allocated. The contest's designer maximizes expected effort. When cost functions are linear or concave in effort, it is optimal to allocate the entire prize sum to a single "first" prize. When cost functions are convex, several positive prizes may be optimal.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 3 (June)
Pages: 542-558

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Handle: RePEc:aea:aecrev:v:91:y:2001:i:3:p:542-558
Note: DOI: 10.1257/aer.91.3.542
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  18. Moulin, Herve, 1994. "Social choice," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 31, pages 1091-1125 Elsevier.
  19. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Lizzeri, Alessandro & Persico, Nicola, 2000. "Uniqueness and Existence of Equilibrium in Auctions with a Reserve Price," Games and Economic Behavior, Elsevier, vol. 30(1), pages 83-114, January.
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