Contest design with a finite type-space: A unifying approach

Abstract

We study the classical contest design problem of allocating a budget across prizes to maximize effort. While the previous literature has predominantly focused on continuum type-space or complete information domains, we analyse the finite type-space domain, thus providing a unifying approach that sheds light on the contrasting structure of optimal contests in these extreme environments. Our results include a characterization of the equilibrium, which involves agents mixing over contiguous intervals and converges to the appropriate continuum type-space equilibrium, and an investigation of how increasing competition influences effort, leading to optimality of winner-takes-all contest under linear and concave costs.