DP16308 Optimal Feedback in Contests

Author(s): Jeffrey Ely, George Georgiadis, Sina Khorasani, Luis Rayo
Publication Date: June 2021
Programme Areas: Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16308

We derive an optimal dynamic contest for environments where the principal monitors effort through a coarse, binary performance measure and chooses prize-allocation and termination rules together with a real-time feedback policy. The optimal contest takes a stark cyclical form: contestants are kept fully apprised of their own successes, and at the end of each fixed-length cycle, if at least one agent has succeeded, the contest ends and the prize is shared equally among all successful agents regardless of when they succeeded; otherwise, the designer informs all contestants that nobody has yet succeeded and the contest resets.