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Optimal Contest Design: A General Approach

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  • Letina, Igor
  • Liu, Shuo
  • Netzer, Nick

Abstract

We consider the design of contests for n agents when the principal can choose both the prize profile and the contest success function. Our framework includes Tullock contests, Lazear-Rosen tournaments and all-pay contests as special cases, among others. We show that the optimal contest has an intermediate degree of competitiveness in the contest success function, and a minimally competitive prize profile with n-1 identical prizes. The optimum can be achieved with a nested Tullock contest. We extend the model to allow for imperfect performance measurement and for heterogeneous agents. We relate our results to a recent literature which has asked similar questions but has typically focused on the design of either the prize profile or the contest success function.

Suggested Citation

  • Letina, Igor & Liu, Shuo & Netzer, Nick, 2020. "Optimal Contest Design: A General Approach," CEPR Discussion Papers 14854, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14854
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    References listed on IDEAS

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    1. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
    2. Jean-Michel Benkert & Igor Letina, 2020. "Designing Dynamic Research Contests," American Economic Journal: Microeconomics, American Economic Association, vol. 12(4), pages 270-289, November.
    3. Franke, Jörg & Leininger, Wolfgang & Wasser, Cédric, 2018. "Optimal favoritism in all-pay auctions and lottery contests," European Economic Review, Elsevier, vol. 104(C), pages 22-37.
    4. Ron Siegel, 2009. "All-Pay Contests," Econometrica, Econometric Society, vol. 77(1), pages 71-92, January.
    5. Jorge Lemus & Guillermo Marshall, 2021. "Dynamic Tournament Design: Evidence from Prediction Contests," Journal of Political Economy, University of Chicago Press, vol. 129(2), pages 383-420.
    6. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-890, September.
    7. Ewerhart, Christian, 2017. "Revenue ranking of optimally biased contests: The case of two players," Economics Letters, Elsevier, vol. 157(C), pages 167-170.
    8. Feng, Xin & Lu, Jingfeng, 2018. "How to split the pie: Optimal rewards in dynamic multi-battle competitions," Journal of Public Economics, Elsevier, vol. 160(C), pages 82-95.
    9. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-898, December.
    10. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, November.
    11. Xiao, Jun, 2016. "Asymmetric all-pay contests with heterogeneous prizes," Journal of Economic Theory, Elsevier, vol. 163(C), pages 178-221.
    12. Sahm, Marco, 2022. "Optimal accuracy of unbiased Tullock contests with two heterogeneous players," BERG Working Paper Series 175, Bamberg University, Bamberg Economic Research Group.
    13. Marco Sahm, 2022. "Optimal Accuracy of Unbiased Tullock Contests with Two Heterogeneous Players," CESifo Working Paper Series 9601, CESifo.
    14. Marco Sahm, 2022. "Optimal Accuracy of Unbiased Tullock Contests with Two Heterogeneous Players," Games, MDPI, vol. 13(2), pages 1-6, March.
    15. Wang Zhewei, 2010. "The Optimal Accuracy Level in Asymmetric Contests," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-18, April.
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    Cited by:

    1. Fu, Qiang & Wu, Zenan & Zhu, Yuxuan, 2022. "On equilibrium existence in generalized multi-prize nested lottery contests," Journal of Economic Theory, Elsevier, vol. 200(C).
    2. Sumit Goel, 2022. "Prizes and effort in contests with private information," Papers 2205.05207, arXiv.org, revised Jan 2023.

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    More about this item

    Keywords

    contest design; optimal contests; tournaments;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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