Increasing E¤ort through Softening Incentives in Contests

When designing incentives for heterogeneous agents facing competition there is a con‡icting interaction: as the more able are incentivized the less able are disincentivized. I label the former the "incentive e¤ect" and the latter the "discouragement e¤ect." Such adverse interaction becomes severe in the face of participants having convex costs of e¤ort or capacity constraints, larger contests, contestants with similar levels of ability, and contest designers with concave bene…t over participant e¤ort. Indeed, in such a world, the "discouragement e¤ect" dominates the "incentive e¤ect," prescribing the optimal incentives to be ‡at or possibly even inverted. That is, providing greater bene…t to the lesser able can elicit more total e¤ort than having greater bene…t awarded to the most able. The author would like to thank John Morgan for his extensive comments and support. The author also thanks Michael R. Baye, Benny Moldovanu, Aner Sela, and Felix Vardy for helpful comments.