Tournaments with Midterm Reviews
Alex Gershkov and
Motty Perry ()
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich
In many tournaments investments are made over time and conducting a review only once at the end, or also at points midway through, is a strategic decision of the tournament designer. If the latter is chosen, then a rule according to which the results of the different reviews are aggregated into a ranking must also be determined. This paper takes a first step in the direction of answering how such rules are optimally designed. A characterization of the optimal aggregation rule is provided for a two-agent two-stage tournament. In particular, we show that treating the two reviews symmetrically may result in an equilibrium effort level that is inferior to the one in which only a final review is conducted. However, treating the two reviews lexicographically by first looking at the final review, and then using the midterm review only as a tie-breaking rule, strictly dominates the option of conducting a final review only. The optimal mechanism falls somewhere in between these two extreme mechanisms. It is shown that the more effective the first-stage effort is in determining the final reviewâ€™s outcome, the smaller is the weight that should be assigned to the midterm review in determining the agentsâ€™ ranking.
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Journal Article: Tournaments with midterm reviews (2009)
Working Paper: Tournaments with Midterm Reviews (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:145
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