The Role of Budget Constraints in Sequential Elimination Tournaments

Abstract

We study how budget constraints affect effort provision in sequential elimination tournaments. Our main result is that the introduction of budget constraints has two opposing effects on the initial effort of the unconstrained contestants, and leads to a non-monotonicity of this effort. This implies that if the budget asymmetry is not too large, total first-stage effort from unconstrained contestants is larger than in the case with unconstrained contestants only. We also provide evidence that total first-stage effort and total effort from unconstrained contestants might be larger in an asymmetric contest.