Multi-Prize Contests as Incentive Mechanisms for the Provision of Public Goods with Heterogenous Agents
University of St. Gallen - Institute of Economy and the Environment (IWOe-HSG); CESifo (Center for Economic Studies and Ifo Institute)
Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute
October 16, 2008
U. of St. Gallen Law & Economics Working Paper No. 2008-26
We analyze if and how multi-prize Tullock contests can be used to guarantee efficient contributions to a public good when agents are heterogenous both with respect to the costs of production of the public good and with respect to the utility from its consumption. With two types of individuals, efficiency can be guaranteed if the following conditions are met: (i) the contest designer can use at least two prizes different from zero, (ii) there is a sufficient number of individuals of each type or types are sufficiently similar and (iii) the reservation utility of the individuals resulting from non-participation is sufficiently low. For a large class of problems it turns out that the optimal prize structure is not monotonic.
Number of Pages in PDF File: 29
Keywords: Public Goods, Contests
JEL Classification: D74, H41, H70, K42
Date posted: December 18, 2008
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