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The Optimal Rewards in Contests

Author

Listed:
  • Chen Cohen

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

  • Todd R. Kaplan

    (Department of Economics, University of Exeter)

  • Aner Sela

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

Abstract

We study all-pay contests under incomplete information where the reward is a function of the contestant's type and also of his effort. We analyze the optimal reward for the designer when the reward is either multiplicatively separable or additively separable in effort and type. In the multiplicatively separable environment the optimal reward is always positive while in the additively separable environment it may also be negative. In both environments, depending on the designer's utility, the optimal reward may either increase or decrease in the contestants' effort. Finally, in both environments, the designer's payoff depends only upon the expected value of the effort-dependent rewards and not the number of rewards.

Suggested Citation

  • Chen Cohen & Todd R. Kaplan & Aner Sela, 2004. "The Optimal Rewards in Contests," Discussion Papers 0402, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:0402
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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