Differential Treatment and the Winner's Effort in Contests with Incomplete Information

Abstract

We study the design of all-pay contests when the organizer's objective is to maximize the expected winner's effort and contestants have private information about their valuations for the prize. We identify sufficient conditions for every optimal contest to involve differential treatment of ex ante symmetric contestants. Moreover, we provide a complete characterization of optimal contests when valuations are uniformly distributed. Finally, our results for the winner's effort also imply that differential treatment is even more likely to benefit the organizer when her objective is to maximize the expected highest effort.

Keywords: contests, all-pay auction, favoritism, winner's effort, mechanism design

JEL Classification: D44, D82