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The optimal allocation of prizes in two-stage contests

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  • Alshech, Shahar
  • Sela, Aner

Abstract

We study two-stage contests in which the designer can award a prize for winning in each stage, and also a prize for winning in both stages. For this purpose, we analyze the optimal allocation of prizes for a designer who wishes to maximize the players’ total effort when the matches in each stage are modeled as Tullock contests. It is demonstrated that the prize for winning in both stages should be allocated in the two-stage Tullock contest with two players, but not when there are more than two players.

Suggested Citation

  • Alshech, Shahar & Sela, Aner, 2021. "The optimal allocation of prizes in two-stage contests," Economics Letters, Elsevier, vol. 203(C).
    • Handle: RePEc:eee:ecolet:v:203:y:2021:i:c:s0165176521001270
    DOI: 10.1016/j.econlet.2021.109850
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    References listed on IDEAS

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    1. Benny Moldovanu & Aner Sela, 2008. "The Optimal Allocation of Prizes in Contests," Springer Books, in: Roger D. Congleton & Arye L. Hillman & Kai A. Konrad (ed.), 40 Years of Research on Rent Seeking 1, pages 615-631, Springer.
    2. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
    3. Dana Sisak, 2009. "Multiple‐Prize Contests – The Optimal Allocation Of Prizes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 82-114, February.
    4. Feng, Xin & Lu, Jingfeng, 2018. "How to split the pie: Optimal rewards in dynamic multi-battle competitions," Journal of Public Economics, Elsevier, vol. 160(C), pages 82-95.
    5. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
    6. 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.
    7. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    8. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
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    Citations

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    Cited by:

    1. Aner Sela, 2022. "Ineffective Prizes In Multi-Dimensional Contests," Working Papers 2205, Ben-Gurion University of the Negev, Department of Economics.
    2. Aner Sela, 2024. "Intermediate prizes in multi-dimensional contests," Theory and Decision, Springer, vol. 97(4), pages 721-743, December.

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    More about this item

    Keywords

    Two-stage contests; Tullock contests; Best-of-two contests;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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