Introduction

Beauty Contests are very common in the procurement of goods and services in the public and private sectors. The public sector has also frequently used Beauty Contests for allocating rights to the private sector to produce goods and services, such as the right to exploit radio frequencies for several purposes or the right to exploit railways or other networks. Although the basic principles of Beauty Contests in both applications are the same, the discussion in this chapter focuses on Beauty Contests as an allocation mechanism.

A Beauty Contest is just one mechanism in a range of allocation modalities, such as lotteries, first-come-first-served allocations, Beauty Contests, auctions, etc. It can be argued that among these modalities Beauty Contests are best suited for projects where there is scope for innovation and different approaches by developers and where authorities hope to elicit imaginative proposals for projects. According to this argument, Beauty Contests permit developers to be creative and to tailor projects to the particular needs of the government since the terms are mostly not fully fixed beforehand. For example, procurement of research projects is for this reason virtually always decided by means of a Beauty Contest.

Despite Beauty Contests' widespread use in procurement and allocation, the economic literature on their design is (almost) non-existent. This chapter is therefore based on practical experience, rather than on existing literature.

The main objective of this chapter is to explain the place of Beauty Contests in the context of allocation mechanisms.