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Optimal Contest Design with Incomplete Information: The Role of Negative Prizes

Speaker: Jun Zhang
Speaker Intro:
Jun Zhang is a associate professor and ARC Research Fellow in Economics Discipline Group, School of Business,University of Technology Sydney. Prof. Zhang's research fields mainly cover economic theory, industrial organization, operation management.
For more information, see Prof. Zhang's CV.
Host: Sen Geng

In this paper, we analyze the role of negative prizes in a fixed budget contest and fully characterize the effort-maximizing mechanism. Contestants have independent private abilities, and their utility function is additively separable in prizes and effort. The effort-maximizing contest generally requires multiple positive and negative prizes. Low-ability contestants could receive negative prizes, which then generate additional prize money to better incentivize those with suficiently high abilities. But to ensure their participation, when all contestants are of low abilities, they all receive some positive prize regardless of their actual abilities. We find that allowing negative prizes can enhance the total effort dramatically. When contestants are risk neutral, the effort-maximizing mechanism can be implemented by a modified all-pay auction.

Time: 2017-04-13(Thursday)16:40-18:00
Venue: N303, Econ Building
Organizer: WISE&SOE