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The Optimal Multi-Stage Contest

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  • Qiang Fu
  • JingFeng Lu

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Qiang Fu & JingFeng Lu, 2007. "The Optimal Multi-Stage Contest," NajEcon Working Paper Reviews 843644000000000387, www.najecon.org.
    • Handle: RePEc:cla:najeco:843644000000000387
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    JEL classification:

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

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