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4 - Smooth Allocation of Prizes

Published online by Cambridge University Press:  05 January 2016

Milan Vojnović
Affiliation:
London School of Economics and Political Science
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Summary

In this chapter we consider a class of contests where a prize is allocated to players according to an allocation mechanism that is a smooth function of invested efforts, with one exception: the corner case in which none of the players invest efforts. The smooth allocation mechanism differs from the rank-order allocation of prizes considered in previous two chapters where the allocation is according to a discontinuous function of effort investments. Smooth allocation of prizes may occur not only because of factors such as stochastic production, where individual production outputs depend on the invested efforts, but also because of exogenous random effects, or imperfect discrimination, where the ranking of players is according to some noisy observations of individual production outputs. As a result of such random effects, the probability of winning a prize may well end up being a smooth function of invested efforts. A smooth allocation of prizes may have desirable properties and for this reason may be imposed by the contest design. For example, one of the key features of the smooth allocation of prizes is that the best performing player may not be allocated the prize with some probability, which may intensify the competition and, as a result, elicit larger effort investments. Our overarching goal in this chapter is to characterize strategic behavior in contests under the smooth allocation of prizes and evaluate properties of interest for particular forms of contest success functions with respect to induced efforts and social efficiency. We present a set of axioms and some probabilistic justifications that serve as a motivation for particular forms of smooth prize allocation. This puts in the spotlight a contest success function that admits a general-logit form, which allocates the prize in proportion to increasing functions of individual effort investments. The general-logit function accommodates several interesting and well-studied special cases such as proportional allocation, where the prize is allocated in proportion to individual efforts, or more generally, the ratio form where the prize is allocated in proportion to a power function of the invested effort. At the end of the chapter, we discuss contest success functions of difference form where the contest success function is a function of the difference of individual efforts.

Type
Chapter
Information
Contest Theory
Incentive Mechanisms and Ranking Methods
, pp. 157 - 222
Publisher: Cambridge University Press
Print publication year: 2016

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  • Smooth Allocation of Prizes
  • Milan Vojnović, London School of Economics and Political Science
  • Book: Contest Theory
  • Online publication: 05 January 2016
  • Chapter DOI: https://doi.org/10.1017/CBO9781139519366.005
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  • Smooth Allocation of Prizes
  • Milan Vojnović, London School of Economics and Political Science
  • Book: Contest Theory
  • Online publication: 05 January 2016
  • Chapter DOI: https://doi.org/10.1017/CBO9781139519366.005
Available formats
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Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Smooth Allocation of Prizes
  • Milan Vojnović, London School of Economics and Political Science
  • Book: Contest Theory
  • Online publication: 05 January 2016
  • Chapter DOI: https://doi.org/10.1017/CBO9781139519366.005
Available formats
×