Prize sharing in collective contests

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In each group the members decide how much effort to put without observing the sharing rules of the other groups. It is shown that endogenous determination of group sharing rules completely eliminates the group-size paradox, i.e. a larger group always attains a higher winning probability than a smaller group, unless the prize is purely private. In addition, an interesting pattern of equilibrium group sharing rules is revealed: the group attaining the lower winning probability is the one choosing the rule giving higher incentives to the members. Terms of use: Documents inKeywords: collective contest, mixed public-good prize, endogenous sharing rules, the groupsize paradox. Shmuel Nitzan Department of EconomicsBar Ilan University Ramat Gan, 52900 Israel nitzans@mail.biu.ac.il Kaoru Ueda Faculty of EconomicsNanzan University Nagoya, We are very much indebted to two anonymous referees and an associate editor for their most useful suggestions.2

Strategic choice of sharing rules in collective contests

“…Our analysis also contributes to the understanding of the occurrence of the GSP, which has been studied recently in the context of collective contests with a mixed publicprivate prize by Esteban and Ray (2001) and Nitzan and Ueda (2011). While Esteban and Ray (2001) assume exogenous and fully egalitarian group sharing rules, Nitzan and Ueda (2011) extend their analysis by considering the possibility of endogenous sharing rules.…”

“…In our perfect information setup, a more meritocratic sharing rule not only induces higher levels of individual effort by that group's members, but it also discourages effort by the other group's members. While the GSP always arises in the case of exogenous and egalitarian sharing rules analyzed by Esteban and Ray (2001) (except for a purely public good), it never does so in the context of endogenous sharing rules under imperfect information considered by Nitzan and Ueda (2011). By taking into account the additional strategic effects induced by the assumption of perfect information combined with the one of unbounded meritocracy, we show that the GSP arises whenever the prize is sufficiently private.…”

“…While Esteban and Ray (2001) assume exogenous and fully egalitarian group sharing rules, Nitzan and Ueda (2011) extend their analysis by considering the possibility of endogenous sharing rules. However, they assume that the information regarding such rules is private, hence their choice does not involve a strategic interaction between groups.…”

“…In this paper, we consider an additional factor that may further affect the occurrence of the GSP, namely the strategic choice of sharing rules in a setup of perfect information. In the imperfect information setup of Nitzan and Ueda (2011), a higher level of meritocracy in a group induces higher levels of individual effort by its members. In our perfect information setup, a more meritocratic sharing rule not only induces higher levels of individual effort by that group's members, but it also discourages effort by the other group's members.…”

“…The notion of the GSP dates back to the seminal work by Olson (1965), who stressed the severity of the free-rider problem within large groups. In the context of collective rent seeking with endogenous sharing rules, the occurrence of the GSP has been studied by Nitzan and Ueda (2011).…”