Prizes and Incentives in Elimination Tournaments

Sherwin Rosen

American Economic Review, 1986, vol. 76, issue 4, 701-15

Abstract: Sequential-elimination career games promote survival-of-the-fittest competitors. However, top prizes must be elevated to provide performance incentives in later stages of the game. The option value of achieving a high rank encourages performance effort in early rounds, but the continuation option plays out toward the finals. Concentrating an extra share of the purse on the top prize replaces the option value of early stage competition and ensures that contestants who have achieved high ranks do not rest of their laurels in attempting to climb higher. Copyright 1986 by American Economic Association.

Date: 1986
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