The Optimal Allocation of Prizes in Contests

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  • Benny Moldovanu
    Department of Economics, University of Mannheim, Seminargebaeude A5, 68131 Mannheim, Germany.
  • Aner Sela
    Department of Economics, Ben Gurion University, P.O.B. 653, Beer Sheva 84105, Israel.

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<jats:p> We study a contest with multiple, nonidentical prizes. Participants are privately informed about a parameter (ability) affecting their costs of effort. The contestant with the highest effort wins the first prize, the contestant with the second-highest effort wins the second prize, and so on until all the prizes are allocated. The contest's designer maximizes expected effort. When cost functions are linear or concave in effort, it is optimal to allocate the entire prize sum to a single “first” prize. When cost functions are convex, several positive prizes may be optimal. (JEL D44, J31, D72, D82) </jats:p>

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