Multiple prizes for multiple tasks: externalities and the optimal design of tournaments

Abstract

This paper studies a multi-task tournament in which each agent undertakes two tasks. Agents’ efforts on one of the tasks create externalities on the performances of other competing agents. We discuss the design of an optimal tournament to achieve a social optimum in the presence of such externalities. In particular, we show that the traditional single-prized tournament is unable to elicit a social optimum, while a task-specific, multi-prized tournament proposed in this paper can achieve a socially optimal outcome.