Winner-Take-All Crowdsourcing Contests with Stochastic Production

Abstract

We study winner-take-all contests for crowdsourcing procurement in a model of costly effort and stochastic production. The principal announces a prize value P, agents simultaneously select a level of costly effort to exert towards production, yielding stochastic quality results, and then the agent who produces the highest quality good is paid P by the principal. We derive conditions on the probabilistic mapping from effort to quality under which this contest paradigm yields efficient equilibrium outcomes, and demonstrate that the conditions are satisfied in a range of canonical settings.