Optimal orchestration of rewards and punishments in rank-order contests

A-Tier
Journal: Journal of Economic Theory
Year: 2023
Volume: 208
Issue: C

Authors (2)

Score contribution per author:

2.011 = (α=2.01 / 2 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We allow negative prizes and investigate effort-maximizing prize design in rank-order contests with incomplete information. Endogenous participation arises due to less-efficient types' incentive to avoid punishments. The optimum features winner-take-all for the best performer and at most one punishment for the worst performer among all potential contestants, whenever they enter the competition. Based on this, we then (1) provide a necessary and sufficient condition for the optimality of pure winner-take-all without punishment; and (2) show that the optimal entry threshold increases with the total number of contestants and converges to the Myerson cutoff in the limit. Finally, we characterize the optimal entry-dependent prize structure, allowing the prize sequence to vary with the number of entrants. The optimal design must entail endogenous entry, and it harmonically integrates both winner-take-all and egality.

Technical Details

RePEc Handle
repec:eee:jetheo:v:208:y:2023:i:c:s0022053122001843
Journal Field
Theory
Author Count
2
Added to Database
2026-01-25