Discussion Paper Details

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Title: Optimal Rewards in Contests

Author(s): Chen Cohen, Todd Kaplan and Aner Sela

Publication Date: October 2004

Keyword(s): all-pay auctions, contests and optimal design

Programme Area(s): Industrial Organization

Abstract: We study all-pay contests under incomplete information where the reward is a function of the contestant's type and effort. We analyse 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.

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Bibliographic Reference

Cohen, C, Kaplan, T and Sela, A. 2004. 'Optimal Rewards in Contests'. London, Centre for Economic Policy Research.