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American Economic Review: Vol. 91 No. 3 (June 2001)

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The Optimal Allocation of Prizes in Contests

Article Citation

Moldovanu, Benny, and Aner Sela. 2001. "The Optimal Allocation of Prizes in Contests." American Economic Review, 91(3): 542-558.

DOI: 10.1257/aer.91.3.542

Abstract

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.

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Authors

Moldovanu, Benny (U Mannheim)
Sela, Aner (Ben Gurion U)

JEL Classifications

D82: Asymmetric and Private Information
D44: Auctions
D72: Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior


American Economic Review


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