Optimal Contest Design when Policing Damaging Aggressive Behavior

We consider the design of a contest in which the prize may motivate not only productive effort but also some damaging aggressive behavior by contestants. The organizer must choose prizes and an enforcement regime defined as a limit on how much aggressiveness will be tolerated and the probability of inspection. The results are interesting. The optimal contest design leads the organizer to tolerate more aggressiveness than the level that minimizes it. The less accurate inspection measures associate with less tolerance on aggressive behavior and the zero-tolerance policy can be optimal if the aggressive behavior is valueless. Furthermore, when the value of contestants’ output is low it may be optimal to motivate much less effort than first best, because the prize spread necessary to induce higher effort necessitates a high level of enforcement, which is not worth the cost. When the value of output is sufficiently high it becomes optimal to offer a high prize spread to motivate effort that is substantial but still below first-best, with costly enforcement then being employed to constrain damaging actions.