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American Economic Review Vol. 91 No. 3 2001

The Optimal Allocation of Prizes in Contests

Benny Moldovanu1; Aner Sela2

1 Department of Economics, University of Mannheim, Seminargebaeude A5, 68131 Mannheim, Germany. · 2 Department of Economics, Ben Gurion University, P.O.B. 653, Beer Sheva, 84105, Israel.

Abstract

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.

DOI
10.1257/aer.91.3.542
Volume
91
Issue
3
Pages
542-558
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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