Optimal orchestration of rewards and punishments in rank-order contests

• 成果类型: Article
• 署名作者: Liu, Bin; Lu, Jingfeng
• 署名单位: Chinese University of Hong Kong; National University of Singapore
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2022.105594
• 发表日期: 2023
• 关键词: All-pay auction; incomplete information; Negative prize; endogenous entry; Optimal contest

摘要

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.(c) 2022 Elsevier Inc. All rights reserved.