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Contest Design with Stochastic Performance

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  • René Kirkegaard

Abstract

This paper studies optimal contest design in contests with noisy performance. Here, contest design is a team moral hazard problem that endogenizes the assignment rule that maps performance profiles into winning probabilities. The optimal design features endogenous standards for eligibility, and the number of prizes that are awarded may be stochastic. Generally, one group of agents is identified as "first claimants" of prizes, contingent on performance exceeding a threshold of excellence. However, which group wins prizes more often depends on the designer's objective function and the performance technologies. Finally, the approach derives endogenous, microfounded, and fully optimal contest success functions.

Suggested Citation

  • René Kirkegaard, 2023. "Contest Design with Stochastic Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 201-238, February.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:1:p:201-38
    DOI: 10.1257/mic.20200422
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    Cited by:

    1. Enzo Brox & Daniel Goller, 2024. "Tournaments, Contestant Heterogeneity and Performance," Papers 2401.05210, arXiv.org, revised Oct 2024.
    2. Giebe, Thomas & Gürtler, Oliver, 2024. "Player strength and effort in contests," Working Papers in Economics and Statistics 4/2024, Linnaeus University, School of Business and Economics, Department of Economics and Statistics.

    More about this item

    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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