DP12456 | Contests with Insurance

Publication Date

11/22/2017

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Abstract

We study all-pay auctions under incomplete information where contestants have non-linear effort functions. Before the contest begins, the designer offers the option of insurance for which a contestant pays a premium for the contest designer who reimburses this contestant's cost of effort if he does not win. We demonstrate that contests with insurance may be profitable for a designer who wishes to maximize his expected revenue as based on the contestants expected total effort, the premium of the insured contestants, and their reimbursement.