Effort maximization in asymmetric contest games with heterogeneous contestants

Franke, Jörg; Kanzow, Christian; Leininger, Wolfgang; Schwartz, Alexandra
March 2013
Economic Theory;Mar2013, Vol. 52 Issue 2, p589
Academic Journal
Contest rules are set up by administrators who frequently have discretionary power in specifying the details of these rules, i.e., they can bias the contest rules toward specific contestants in order to further their prime objective. We derive the optimal bias of the contest rule for a contest administrator, who is interested in maximizing the total efforts expended in the contest. The solution is obtained in closed form for a widely used class of n-person contest games. Setting the optimal bias has important implications: (i) there is never exclusion of strong players, instead there is (endogenously induced) inclusion of weak contestants; (ii) the contest administrator will optimally level the playing field by encouraging weak contestants, but he will not equalize the contestants' chances unless they are identical; and (iii) at least three contestants will be active in equilibrium of the optimal contest, irrespective of heterogeneity.


Related Articles

  • Elimination of arbitrage states in asymmetric information models. Cornet, Bernard; Boisdeffre, Lionel // Economic Theory;Feb2009, Vol. 38 Issue 2, p287 

    In a financial economy with asymmetric information and incomplete markets, we study how agents, having no model of how equilibrium prices are determined, may still refine their information by eliminating sequentially “arbitrage state(s)”, namely, the state(s) which would grant the...

  • Multi-player contests with asymmetric information. Wärneryd, Karl // Economic Theory;Oct2012, Vol. 51 Issue 2, p277 

    We consider imperfectly discriminating, common-value, all-pay auctions (or contests) in which some players know the value of the prize, others do not. We show that if the prize is always of positive value, then all players are active in equilibrium. If the prize is of value zero with positive...

  • Dynamic Games with Asymmetric Information: A Framework for Empirical Work*. Fershtman, Chaim; Pakes, Ariel // Quarterly Journal of Economics;Nov2012, Vol. 127 Issue 4, p1611 

    We develop a framework for the analysis of dynamic oligopolies with persistant sources of asymmetric information that enables applied analysis of situations of empirical importance that have been difficult to deal with. The framework generates policies that are “relatively” easy for...

  • Imperfect competition in differentiated credit contract markets. Kojima, Naoki // Annals of Finance;Apr2009, Vol. 5 Issue 2, p175 

    This paper studies a duopolistic credit market in which borrowers differ in risk. In our competition game, one lender is in an advantaged position with respect to the other due to past relations with the borrowers. We investigate the features of the equilibrium contract and show that the best...

  • Production and financial policies under asymmetric information. Drèze, Jacques; Minelli, Enrico; Tirelli, Mario // Economic Theory;May2008, Vol. 35 Issue 2, p217 

    We propose an extension of the standard general equilibrium model with production and incomplete markets to situations in which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual...

  • A race beyond the bottom: the nature of bidding for a firm. Furusawa, Taiji; Hori, Kazumi; Wooton, Ian // International Tax & Public Finance;Jun2015, Vol. 22 Issue 3, p452 

    We examine how the bidding environment may affect the outcome of tax competition between two countries (or two regions) in attracting a firm's foreign direct investment (FDI). We compare the equilibrium location choice and payoffs from an English auction, with both complete and incomplete...

  • An optimal auction perspective on lobbying. Boylan, Richard T. // Social Choice & Welfare;2000, Vol. 17 Issue 1, p55 

    Abstract. The lobbying process has been described as an auction (see, for instance, Bernheim and Whinston [4]). While the auction rules picked are supposed to be descriptive, they vary from author to author. Examples show that these different auction rules make different predictions of what...

  • Information Asymmetry and the Sinking Fund Provision. Chunchi Wu // Journal of Financial & Quantitative Analysis;Sep93, Vol. 28 Issue 3, p399 

    This paper examines the signalling implications of sinking funds and shows that under information asymmetry the sinking fund amortization rate provides a credible signal for the quality of the firm. In a separating equilibrium, better quality firms choose higher sinking fund amortization rates...

  • Customer Loyalty Programs: Are They Profitable? Singh, Siddharth S.; Jain, Dipak C.; Krishnan, Trichy V. // Management Science;Jun2008, Vol. 54 Issue 6, p1205 

    Loyalty programs are very common in practice. Many researchers have worked at understanding the impact of loyalty programs on market competition and the mechanism behind it. Interestingly, almost all of the studies have explored a symmetric equilibrium where both of the competing firms offer a...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics