Contests where there is variation in the marginal productivity of effort |
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Authors: | Nirvikar Singh Donald Wittman |
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Institution: | (1) Economics Department, University of California, Santa Cruz, CA 95064, USA (e-mail: wittman@cats.ucsc.edu) , US |
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Abstract: | Summary. We provide a characterization of participants' behavior in a contest or tournament where the marginal productivity of effort
varies across contestants and individual productivity is private information. We then consider the optimal design of such
a contest.
We first analyze contestant behavior for the usual type of contest, where the highest output wins. Abilities need not be independently
distributed. We demonstrate that there is a unique symmetric equilibrium output function, that output is increasing in ability,
and that marginal effort is increasing in ability, while effort decreases when the cost of effort increases.
Next we consider the case where the highest output need not win, with independently distributed abilities. We analyze the
contest designer's decisions in choosing contest rules optimal from her perspective. We show that the output produced, probability
of winning, and contest designer's expected revenue are generally increasing in contestants' ability. We examine the relationship
between the marginal cost of producing output and marginal utility per dollar of the net award for winning.
Received: July 30, 1998; revised version: August 7, 2000 |
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Keywords: | and Phrases: Optimal contest Contest design Asymmetric information Correlated abilities |
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