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Title: Optimal Contest Design: A General Approach

Author(s): Igor Letina, Shuo Liu and Nick Netzer

Publication Date: June 2020

Keyword(s): contest design, optimal contests and tournaments

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Letina, I, Liu, S and Netzer, N. 2020. 'Optimal Contest Design: A General Approach'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14854