Optimal Tournaments

32 Pages Posted: 16 Oct 2017

See all articles by Mikhail Drugov

Mikhail Drugov

Centre for Economic Policy Research (CEPR); New Economic School (NES)

Dmitry Ryvkin

Florida State University

Date Written: October 2017

Abstract

We study the optimal allocation of prizes and comparative statics of multi-prize rank-order tournaments. For a principal allocating a fixed budget, we show that the winner-take-all (WTA) prize schedule is optimal when the distribution of noise has an increasing failure rate (IFR). For noise distributions with unimodal failure rates the optimal prize allocation moves closer to WTA as the noise distribution becomes smaller in the convex transform order. We also identify a natural ordering of prize schedules by how closely they approximate the WTA schedule and show that for log-concave noise distributions the equilibrium effort is monotone in this order. The impact of noise intensity on equilibrium effort is captured by the dispersive order.

Keywords: comparative statics, convex transform order, dispersive order, failure rate, optimal allocation of prizes, tournament, unimodality

JEL Classification: C72, D72, D82

Suggested Citation

Drugov, Mikhail and Ryvkin, Dmitry, Optimal Tournaments (October 2017). CEPR Discussion Paper No. DP12368, Available at SSRN: https://ssrn.com/abstract=3053896

Mikhail Drugov (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Dmitry Ryvkin

Florida State University ( email )

Tallahassee, FL 30306-2180
United States

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