Contests where there is variation in the marginal productivity of effort (Q5955118)

Under the assumptions that the marginal productivity of efforts varies between the contestants and individual productivity is private information the participants behavior and optimal design of a contest are investigated. The following two cases are studied: in the first one the highest output always wins (it is shown that there exists a unique symmetric equilibrium output function, the output is increasing in ability and marginal effort decreases when the cost of effort increases), in the second one the highest output need not win (it is shown that the output produced, the probability of winning and contest designer's expected revenue are generally increasing in contestants' ability). The structure of the proposed proof of the existence of symmetric equilibrium output function \(q( \theta)\) in Proposition 1 is the following: ``If an equilibrium with \(q( \theta)\) increasing does exist then \(\dots\)''. ``Assuming that \(q( \theta)\) is differentiable, and differentiating, we have \(\dots\)''. ``Therefore if \(q( \theta)\) is defined by the differential equation and boundary conditions \(\dots\) we have \(\dots\)''. ``Note that the differential equation is obtained from \({\frac{\partial V}{\partial x}}( \theta , \theta) = 0\). By construction, therefore, we have established existence''. By opinion of the reviewer this proof is an incorrect one. Moreovere it is not evident that it always exists \(\theta\) satisfying the equality \({\frac{\partial V}{\partial x}}( \theta , \theta) = 0\).