A Micro Foundation of Generalized Multi-Prize Lottery Contests: A Noisy Ranking Perspective

This paper proposes a multi-prize noisy-ranking contest model. Contestants are ranked in descend- ing order based on their perceived outputs, and rewarded by their ranks. A contestant's perceivable output increases with his autonomous eort, but is subjected to random perturbation. Under plausible conditions, the stochastic equivalence of the model presented in this paper with the family of (winner- take-all and multi-prize) lottery contests built upon ratio-form contest success functions is established. The model thus provides a plausible microfoundation for this family of often-studied contests. In addi- tion, the approach taken in this paper reveals a common thread that connects a broad class of seemingly disparate competitive activities (such as rent-seeking contests, patent race, research tournament, and auctions with pre-auction investments) and uni…es them through a common performance evaluation rule.