Abstract
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.
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We would like to thank Marco Runkel and Kai Konrad for detailed discussions as well as participants at several seminars and conferences and three anonymous referees for helpful comments. This research was partially supported by a grant from the international doctorate program “Identification, Optimization, and Control with Applications in Modern Technologies” within the Elite-Network of Bavaria.
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Franke, J., Kanzow, C., Leininger, W. et al. Effort maximization in asymmetric contest games with heterogeneous contestants. Econ Theory 52, 589–630 (2013). https://doi.org/10.1007/s00199-011-0657-z
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DOI: https://doi.org/10.1007/s00199-011-0657-z