The Optimal Allocation of Prizes in Contests

Moldovanu, Benny; Sela, Aner

doi:10.1007/978-3-540-79182-9_45

Cited by 121 publications

(208 citation statements)

References 24 publications

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“…A similar result is known in the literature on all-pay auctions with incomplete information, see, e.g., Hillman and Riley (1989), Amann and Leininger (1996), Krishna and Morgan (1997), and Moldovanu and Sela (2001). In these models, each participant takes a draw from a common distribution.…”

Section: Comparative Statics and Rent Dispersionsupporting

confidence: 62%

Continuous Time Contests with Private Information

Seel

Strack

2016

Mathematics of OR

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This paper introduces a class of contest models in which each player decides when to stop a privately observed Brownian motion with drift and incurs costs depending on his stopping time. The player who stops his process at the highest value wins a prize.We prove existence and uniqueness of a Nash equilibrium outcome and derive the equilibrium distribution in closed form. As the variance tends to zero, the equilibrium outcome converges to the symmetric equilibrium of an all-pay auction. For two players and constant costs, each player's equilibrium profit decreases if the drift increases, the variance decreases, or the costs decrease.

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Section: Comparative Statics and Rent Dispersionsupporting

confidence: 62%

Continuous Time Contests with Private Information

Seel

Strack

2016

Mathematics of OR

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“…We combine prior research from the eld of contests and tournaments (e.g. Moldovanu and Sela 2001) with models of product development and search (e.g. Dahan andMendelson 2001, Terwiesch and.…”

Section: Introductionmentioning

confidence: 99%

Innovation Contests, Open Innovation, and Multiagent Problem Solving

2008

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In an innovation contest, a firm (the seeker) facing an innovation-related problem (e.g., a technical R&D problem) posts this problem to a population of independent agents (the solvers) and then provides an award to the agent that generated the best solution.In this paper, we analyze the interaction between a seeker and a set of solvers. Prior research in economics suggests that having many solvers work on an innovation problem will lead to a lower equilibrium effort for each solver, which is undesirable from the perspective of the seeker. In contrast, we establish that the seeker can benefit from a larger solver population because he obtains a more diverse set of solutions, which mitigates and sometimes outweighs the effect of the solvers' underinvestment in effort. We demonstrate that the inefficiency of the innovation contest resulting from the solvers' underinvestment can further be reduced by changing the award structure from a fixed-price award to a performance-contingent award. Finally, we compare the quality of the solutions and seeker profits with the case of an internal innovation process. This allows us to predict which types of products and which cost structures will be the most likely to benefit from the contest approach to innovation. AbstractIn an innovation contest, a rm (the seeker) facing an innovation related problem (e.g. a technical R&D problem) posts this problem to a population of independent agents (the solvers) and then provides an award to the agent that generated the best solution.In this paper, we analyze the interaction between a seeker and a set of solvers. Prior research in Economics suggests that having many solvers work on an innovation problem will lead to a lower equilibrium e ort for each solver, which is undesirable from the perspective of the seeker. In contrast, we establish that the seeker can benet from a larger solver population as he obtains a more diverse set of solutions, which mitigates and sometimes outweighs the e ect of the solvers' underinvestment in e ort. We demonstrate that the ine ciency of the innovation contest resulting from the solvers' under-investment can further be reduced by changing the award structure from a xed price award to a performance contingent award.Finally, we compare the quality of the solutions and seeker prots with the case of an internal innovation process. This allows us to predict which types of products and which cost structures will be the most likely to benet from the contest approach to innovation.

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“…4 Moreover, as Krishna and Morgan (1997) showed, all-pay auctions tend to generate higher aggregate bids than their winner-pay counterparts, that is, traditional permit auctions. In addition, as Moldovanu and Sela (2001) showed, when the prize structure is suitably chosen, such a contest will tend to generate the largest aggregate bids (in our case, the largest improvement in the secondary objective). As the choice of external action at the margin can signi…cantly alter a …rm's permit allocation, the robust incentives created in the PAC system should induce all …rms to maximise their external action.…”

Section: What' S Good About a Permit Allocation Contest?mentioning

confidence: 63%

“…Some general insights to the problem were provided by Moldovanu and Sela (2001;2006) and references therein, advocating for some discriminatory features of contests.…”

Section: The Regulator' S Optimal Choice Of Allocationsmentioning

confidence: 99%

“…When there is no individual-speci…c noise involved in the observation of …rms'actions, one can implement a rank-order contest, which is, in e¤ect, a multi-prize allpay auction (Glazer and Hassin 1988;Barut and Kovenock 1998;Clark and Riis 1998;Moldovanu and Sela 2001;2006). This di¤ers from tournaments as agents in rank-order contest models are generally assumed to have a deterministic relationship between e¤ort and actions.…”

Section: Introductionmentioning

confidence: 99%

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Using contests to allocate pollution rights

2009

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In this paper we advocate a new initial allocation mechanism for a tradable pollution permit market. We outline a Permit Allocation Contest (PAC) that distributes permits to …rms based on their rank relative to other …rms. This ranking is achieved by ordering …rms based on an observable 'external action'where the external action is an activity or characteristic of the …rm that is independent of their choice of emissions in the tradeable permit market. We argue that this mechanism has a number of bene…ts over auctioning and grandfathering. Using this mechanism e¢ ciently distributes permits, allows for the attainment of a secondary policy objective and has the potential to be more politically appealing than existing alternatives.

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The Optimal Allocation of Prizes in Contests

Cited by 121 publications

References 24 publications

Continuous Time Contests with Private Information

Continuous Time Contests with Private Information

Innovation Contests, Open Innovation, and Multiagent Problem Solving

Using contests to allocate pollution rights

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