Economic Theory

, Volume 51, Issue 2, pp 351–382

The optimal multi-stage contest

Symposium

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.

Keywords

Multi-stage contest Effort maximization Prize allocation Winner-take-all Sequential elimination 

JEL Classification

C7 D7 J3 

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Copyright information

© Springer-Verlag 2009

Authors and Affiliations

  1. 1.Department of Business PolicyNational University of SingaporeSingaporeSingapore
  2. 2.Department of EconomicsNational University of SingaporeSingaporeSingapore

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