Abstract
This paper studies the design of a contest between two possible budget constrained players when the organizer of the contest ignores their budgets and whose objective is maximizing aggregate effort. First we define the optimal effort as the maximum levels of effort achievable under a complete information setting. We show that effort is maximized when the contest is biased towards the constrained player in case they have different budgets. Afterwards, we propose a mechanism that implements the optimal effort under incomplete information. This mechanism consists in offering lower prizes to players that claim to be constrained.
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