The optimal multi-stage contest
AbstractThis paper investigates the optimal (effort-maximizing) structure of multi-stage sequential-elimination contests. We allow the contest organizer to design the contest structure using two instruments: contest sequence (the number of stages, and the number of contestants remaining after each stage), and prize allocation. When the contest technology is sufficiently noisy, we find that multi-stage contests elicit more effort than single-stage contests. For concave and moderately convex impact functions, the contest organizer should allocate the entire prize purse to a single final prize, regardless of the contest sequence. Additional stages always increase total effort. Therefore, the optimal contest eliminates one contestant at each stage until the finale when a single winner obtains the entire prize purse. Our results thus rationalize various forms of multi-stage contests that are conducted in the real world. Copyright Springer-Verlag 2012
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 51 (2012)
Issue (Month): 2 (October)
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- D7 - Microeconomics - - Analysis of Collective Decision-Making
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
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