Ability Grouping in Contests

This paper considers a situation in which students with heterogeneous ability types are grouped into different competitions for performance ranking. A planner can group the students and design prize structure in each competition in order to maximize the weighted total performance subject to a no-child-left-behind requirement. We show that, whatever the type-specific weights are, separating – assigning students with the same ability together – is superior to mixing – assigning students with different abilities together. Moreover, we also characterize the associated optimal prize structures