Eliciting performance: deterministic versus proportional prizes

Two standard schemes for awarding a prize have been examined in the literature. The prize is awarded (πD) deterministically: to the contestant with the highest output; (πP ) probabilistically: to all contestants, with probabilities proportional to their outputs. Our main result is that if there is suffi cient diversity in contestants’skills, and not too much noise on output, then πP will elicit more output on average than πD. Indeed if contestants know each others’skills (the complete information case) then the expected output at any Nash equilibrium selection under πP exceeds that at any individually rational selection under πD. If there is incomplete information, the inequality continues to hold when we restrict to Nash selections for both schemes. JEL Classification: C70, C72, C79, D44, D63, D82.