DP4484 First and Second Prizes in Imperfectly Discriminating Contests

Author(s):	Stefan Szymanski, Tommaso Valletti
Publication Date:	July 2004
Keyword(s):	imperfectly discriminating (logit) contests, prizes
JEL(s):	D43, L13
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=4484

Most of the contest literature deals with first prizes; this Paper deals with the optimality of second prizes. We show that in a three-person contest where one contestant is very strong a second prize can be optimal from the point of view of eliciting maximum effort from every contestant. Moreover, we consider the desirability of second prizes from the point of view of competitive balance, which matters for contests such as sports competitions.