Please use this identifier to cite or link to this item: https://doi.org/10.1007/s00199-009-0463-z
Title: The optimal multi-stage contest
Authors: Fu, Q. 
Lu, J.
Keywords: Effort maximization
Multi-stage contest
Prize allocation
Sequential elimination
Winner-take-all
Issue Date: 2012
Citation: Fu, Q., Lu, J. (2012). The optimal multi-stage contest. Economic Theory 51 (2) : 351-382. ScholarBank@NUS Repository. https://doi.org/10.1007/s00199-009-0463-z
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. © 2009 Springer-Verlag.
Source Title: Economic Theory
URI: http://scholarbank.nus.edu.sg/handle/10635/44741
ISSN: 09382259
DOI: 10.1007/s00199-009-0463-z
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