Using a Simple Contest to Illustrate Mechanism Design

Abstract

This paper describes a simple classroom activity that illustrates how economic theory can be used for mechanism design. The rules for a set of contests are presented; the results typically obtained from these contests illustrate how the prize structure can be manipulated in order to produce a particular outcome. Specifically, this activity is designed to show how changing the prize structure can impact both the contestants' average efforts and the effort level of the hardest working contestant. The activity can be run in a 50-minute class, has instructions that fit on a single piece of paper, and although it can be run in large classes, requires only six students.

Keywords: Classroom experiment, contest, mechanism design

JEL Classification: A22, C72, C92