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The optimal multi-stage contest

Author

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  • Qiang Fu

    ()

  • Jingfeng Lu

    ()

Abstract

This 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

Suggested Citation

  • Qiang Fu & Jingfeng Lu, 2012. "The optimal multi-stage contest," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 351-382, October.
  • Handle: RePEc:spr:joecth:v:51:y:2012:i:2:p:351-382
    DOI: 10.1007/s00199-009-0463-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Multi-stage contest; Effort maximization; Prize allocation; Winner-take-all; Sequential elimination; C7; D7; J3;

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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