Selecting contestants for a rent-seeking contest

In this paper, a contest designer derives profits from aggregate effort exerted by the contestants. I develop a revelation mechanism that enables the contest designer to select a subset of contestants from a pool of candidates in a way that maximizes her profits, even though she is uninformed about the candidates’ valuations for the contest prize. I prove the existence of an incentive compatible and individually rational mechanism. I solve the designer’s problem by using a three-stage game. At Stage 0, the designer designs a mechanism. At Stage 1, candidates participate in the mechanism then a subset of candidates become contestants. Lastly, at Stage 2, information is revealed and the contestants participate in a contest. I show that the optimal size of a contest depends on contestants’ types, the cost of the prize to the designer and on the marginal cost that a contestant imposes on the designer. Contrary to models in which an entry fee s access to the contest, the designer can elicit truthful revelations by imposing revelation costs, and in turn is able to select the optimal subset of contestants.