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A DESIGNER'S CHOICE BETWEEN SINGLE-PRIZE AND PARALLEL TOURNAMENTS

In this article, I theoretically and experimentally compare a designer's profits from two tournament designs. The first design is a standard winner-take-all tournament with a single prize. The second design features two winner-take-all ( parallel) tournaments with different prizes where individuals choose which tournament to enter before competing. I develop a simple model that illustrates how the relative performances of these designs change as contestants' abilities differ. The theoretical model shows that the designer's profit is higher ( lower) in the parallel tournament when contestants' abilities differ greatly ( are similar). I complement these findings with experimental evidence. The experiments show that the parallel tournament is more profitable under high heterogeneity, whereas under low heterogeneity, the designer is better off with the single-prize tournament. Furthermore, high-ability agents under-participate and low-ability agents over-participate in the high-prize tournament relative to the theoretical prediction.