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The optimal multi-stage contest

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Author Info
Fu, Qiang
Lu, Jingfeng

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Abstract

This paper investigates the optimal (effort-maximizing) structure of multi-stage sequential-elimination contests with pooling competition in each stage. We allow the contest organizer to design the contest structure in two arms: contest sequence (the number of stages, and the number of remaining contestants in each stage), and prize allocation. First, we find that the optimality of "winner-take-all" (single final winner, single final prize, no intermediate prizes) is independent of the contest sequence. Second, we show that the more complete the contest sequence is, the more efforts can be induced from the contestants. Therefore, the optimal contest eliminates one contestant at each stage until the finale, while a single winner takes over the entire prize purse. Our results not only rationalize various forms of multi-stage contests conducted in reality, such as the well-known Fox TV show "American Idol", but also shed light on the design of internal organizational hierarchy.

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File URL: http://mpra.ub.uni-muenchen.de/946/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 946.

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Date of creation: Nov 2006
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Handle: RePEc:pra:mprapa:946

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Related research
Keywords: Contest design multi-stage contest Pooling competition.

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Find related papers by JEL classification:
D7 - Microeconomics - - Analysis of Collective Decision-Making
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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References listed on IDEAS
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  1. Clark, Derek J. & Riis, Christian, 1998. "Influence and the discretionary allocation of several prizes," European Journal of Political Economy, Elsevier, vol. 14(4), pages 605-625, November. [Downloadable!] (restricted)
  2. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June. [Downloadable!] (restricted)
  3. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December. [Downloadable!] (restricted)
  4. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June. [Downloadable!] (restricted)
    Other versions:
  5. Rick Harbaugh & Tilman Klumpp, 2004. "Early Round Upsets and Championship Blowouts," Working Papers 2004-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
  6. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October. [Downloadable!] (restricted)
  7. Moldovanu, Benny & Sela, Aner, 2002. "Contest Architecture," Sonderforschungsbereich 504 Publications 02-06, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  8. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers 9-92-2, Pennsylvania State - Department of Economics.
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  9. Amegashie, J Atsu, 1999. " The Design of Rent-Seeking Competitions: Committees, Preliminary and Final Contests," Public Choice, Springer, vol. 99(1-2), pages 63-76, April. [Downloadable!] (restricted)
  10. Clark, Derek J & Riis, Christian, 1996. " A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
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