DP12456 Contests with Insurance

Author(s): Yizhaq Minchuk, Aner Sela
Publication Date: November 2017
Keyword(s): all-pay auctions, Contests, Insurance, reimbursement
JEL(s): D44
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12456

We study all-pay auctions under incomplete information where contestants have non-linear effort functions. Before the contest begins, the designer offers the option of insurance for which a contestant pays a premium for the contest designer who reimburses this contestant's cost of effort if he does not win. We demonstrate that contests with insurance may be profitable for a designer who wishes to maximize his expected revenue as based on the contestants expected total effort, the premium of the insured contestants, and their reimbursement.