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Prizes and Incentives in Elimination Tournaments

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  • Rosen, Sherwin

Abstract

Sequential-elimination career games promote survival-of-the-fittest competitors. However, top prizes must be elevated to provide performance incentives in later stages of the game. The option value of achieving a high rank encourages performance effort in early rounds, but the continuation option plays out toward the finals. Concentrating an extra share of the purse on the top prize replaces the option value of early stage competition and ensures that contestants who have achieved high ranks do not rest of their laurels in attempting to climb higher. Copyright 1986 by American Economic Association.

Suggested Citation

  • Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-715, September.
  • Handle: RePEc:aea:aecrev:v:76:y:1986:i:4:p:701-15
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    References listed on IDEAS

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    1. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-364, June.
    2. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    3. Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
    4. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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