Division of a Contest with Identical Prizes

Abstract

This paper studies an economic contest with identical prizes. We consider the effects of division of the contest. When the contest designer divides the contest symmetrically, each participant competes in each assigned division. The main result is that division is sometimes profitable for the contest designer, in the sense that division brings about increases in lower ability agents' (and occasionally higher ability agents') efforts in exchange for decreases in other agents' efforts. We also study an application to educational attainment. The result helps to explain why it is difficult to find class size effects in empirical data.

Keywords: Contest design, all-pay auction, inefficient allocation of prizes in contests, educational production, class size effects

JEL Classification: D44, D72, D82, I21, J31