Contests and the Private Provision of Public Goods

The private provision of public goods suffers from two potential types of efficiency failures: non-optimal output levels of the public good (quantity problem) and an inefficient mix of contributors and non-contributors (sorting problem). Embedding the provision game into a contest that rewards larger contributions by a higher probability of winning a prize may remedy these failures. Applications include tenure decisions at universities, electoral competition among politicians, or incentives in teams. We characterize the general structure of contests that support efficient allocations. In general, efficiency requires a negative relationship between prize and the decisiveness of the contest. We illustrate our findings with the example of Tullock-type contests