Abstract
This paper is the first to study difference-form group contests, that is, contests fought among groups where their probability of victory depends on the absolute difference of their effective efforts. We show that key equilibrium variables in these contests can be expressed as a function of a modified version of the Watts poverty index. We use the properties of this index to study the impact of heterogeneity, both within and between groups. In the case of homogeneous groups, we show that multiple groups can be active in equilibrium and that more groups are active and aggregate effort is higher the more similar their valuations of victory are. We then characterize equilibria under heterogeneous groups. We show that within-group heterogeneity is typically detrimental to the success of a group in the contest. Groups may have an incentive to become more homogeneous in order to increase their chances of victory.
| Original language | English |
|---|---|
| Journal | Review of Economic Design |
| Early online date | 5 Sept 2022 |
| DOIs | |
| Publication status | E-pub ahead of print - 5 Sept 2022 |
Bibliographical note
Funding Information:We thank the guest editor and two anonymous referees, Wolfgang Leininger, Jozsef Sakovics, Petros Sekeris, Alberto Vesperoni and audiences at the Barcelona GSE, Edinburgh, the NEPS annual conference, the Contests: Theory and Evidence Conference at Norwich and the Young Researchers Workshop on Contests and Tournaments for their useful suggestions and comments. All remaining errors are completely ours. Both authors acknowledge financial support from the Spanish Ministry for Science and Innovation (Grant ECO2015-66281-P).
Keywords
- Contest success function
- Contests
- Groups
- Heterogeneity
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)