Difference-form group contests

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.