Many websites rely on user-generated content to provide value to consumers.
These websites typically incentivize participation by awarding users badges
based on their contributions. While these badges typically have no explicit
value, they act as symbols of social status within a community. In this paper,
we consider the design of badge mechanisms for the objective of maximizing the
total contributions made to a website. Users exert costly effort to make
contributions and, in return, are awarded with badges. A badge is only valued
to the extent that it signals social status and thus badge valuations are
determined endogenously by the number of users who earn each badge. The goal of
this paper is to study the design of optimal and approximately badge mechanisms
under these status valuations. We characterize badge mechanisms by whether they
use a coarse partitioning scheme, i.e. awarding the same badge to many users,
or use a fine partitioning scheme, i.e. awarding a unique badge to most users.
We find that the optimal mechanism uses both fine partitioning and coarse
partitioning. When status valuations exhibit a decreasing marginal value
property, we prove that coarse partitioning is a necessary feature of any
approximately optimal mechanism. Conversely, when status valuations exhibit an
increasing marginal value property, we prove that fine partitioning is
necessary for approximate optimality
