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Tournaments with Midterm Reviews

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  • Gershkov, Alex
  • Perry, Motty

Abstract

In many tournaments investments are made over time and conducting a review only once at the end, or also at points midway through, is a strategic decision of the tournament designer. If the latter is chosen, then a rule according to which the results of the different reviews are aggregated into a ranking must also be determined. This paper takes a first step in the direction of answering how such rules are optimally designed. A characterization of the optimal aggregation rule is provided for a two-agent two-stage tournament. In particular, we show that treating the two reviews symmetrically may result in an equilibrium effort level that is inferior to the one in which only a final review is conducted. However, treating the two reviews lexicographically by first looking at the final review, and then using the midterm review only as a tie-breaking rule, strictly dominates the option of conducting a final review only. The optimal mechanism falls somewhere in between these two extreme mechanisms. It is shown that the more effective the first-stage effort is in determining the final review’s outcome, the smaller is the weight that should be assigned to the midterm review in determining the agents’ ranking.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 145.

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Date of creation: May 2006
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Handle: RePEc:trf:wpaper:145

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  1. Jerry R. Green & Nancy L. Stokey, 1982. "A Comparison of Tournaments and Contracts," NBER Working Papers 0840, National Bureau of Economic Research, Inc.
  2. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  3. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  4. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
  5. Moldovanu, Benny & Sela, Aner, 2002. "Contest Architecture," Sonderforschungsbereich 504 Publications 02-06, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  6. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
  7. Aoyagi, Masaki, 2010. "Information feedback in a dynamic tournament," Games and Economic Behavior, Elsevier, vol. 70(2), pages 242-260, November.
  8. 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.
  9. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  10. Dubey, Pradeep & Haimanko, Ori, 2003. "Optimal scrutiny in multi-period promotion tournaments," Games and Economic Behavior, Elsevier, vol. 42(1), pages 1-24, January.
  11. Yildirim, Huseyin, 2005. "Contests with multiple rounds," Games and Economic Behavior, Elsevier, vol. 51(1), pages 213-227, April.
  12. Florian Ederer, 2010. "Feedback and Motivation in Dynamic Tournaments," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(3), pages 733-769, 09.
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