Numerical Modelling of Two-Prize Asymmetric Contests

This thesis presents an analysis on a class of asymmetric imperfectly discrim- inating multi-prize contests with the aim to investigate when more than one prize becomes optimal prize allocation if the average effort is to be maximized. We present n-person model with heterogeneous contestants who compete for two, possibly different, prizes. The contestants may differ in their relative abil- ities, i.e., parameters affecting their probabilities to win either of the prizes. Two different numerical methods for finding pure strategy Nash equilibria are employed. Depending on particular distributions of the abilities, we find two possible scenarios when the second prize becomes optimal. Furthermore, we ad- dress an issue of existence and uniqueness of a pure strategy Nash equilibrium with respect to the returns to scale in effort parameter. JEL Classification C63, D72 Keywords Imperfectly discriminating contests; Heteroge- neous abilities; Multiple prizes; Numerical meth- ods Author's e-mail lida.matyskova@centrum.cz Supervisor's e-mail gregor@fsv.cuni.c