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"Reverse" Nested Lottery Contests

Qiang Fu (), Jingfeng Lu () and Zhewei Wang ()
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Qiang Fu: Department of Strategy and Policy, National University of Singapore

No 2013-02, SDU Working Papers from School of Economics, Shandong University

Abstract: This paper proposes a multi-prize "reverse" nested lottery contest model, which can be viewed as the "mirror image" of the conventional nested lottery contest of Clark and Riis (1996a). The reverse-lottery contest model determines winners by selecting losers based on contestants' one-shot effort through a hypothetical sequence of lotteries. We provide a microfoundation for the reverse-lottery contest from a perspective of (simultaneous) noisy performance ranking and establish that the model is underpinned by a unique performance evaluation rule. We further demonstrate that the noisy-ranking model can be interpreted intuitively as a "worst-shot" contest, in which contestants' performances are evaluated based on their most severe mistakes. The reverse-lottery contest model thus depicts a great variety of widely observed competitive activities of this nature. A handy closed-form solution for a symmetric equilibrium of the reverse-lottery contest is obtained. We show that the winner-take-all principle continues to hold in reverse-lottery contests. Moreover, we find that a reverse-lottery contest elicits more effort than a conventional lottery contest whenever the prizes available to contestants are relatively scarce.

Keywords: Contest Elimination Function; Imperfectly Discriminatory Contests; Least-Favorable Performance Ranking; Multi-Prize Contest. (search for similar items in EconPapers)
JEL-codes: C72 D72 D74 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013-07
New Economics Papers: this item is included in nep-mic
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http://econ.sdu.edu.cn/RePEc/shn/wpaper/Reverse_Contests20130709.pdf July, 2013 (application/pdf)
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Journal Article: “Reverse” nested lottery contests (2014) Downloads
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