Contests with Random Noise and a Shared Prize

Sheremeta, Roman and Masters, William and Cason, Timothy (2009): Contests with Random Noise and a Shared Prize.

Abstract

This note introduces a model of contests with random noise and a shared prize that combines features of Tullock (1980) and Lazear and Rosen (1981). Similar to results in Lazear and Rosen, as the level of noise decreases the equilibrium effort rises. As the noise variance approaches zero, the equilibrium effort of the shared-prize contest approaches that of a Tullock lottery contest.

• Item Type: MPRA Paper
• Language: English
• Keywords: Contests, All-pay auctions, Tournaments, Random noise, Shared prize
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions

References

Amegashie, J. (2006). A contest success function with a tractable noise parameter, Public Choice, 126, 135-144.

Baye, M.R., de-Vries, C.G., & Kovenock, D. (1996). The all-pay auction with complete information, Economic Theory, 8, 291-305.

Baye, M.R., Hoppe, H.C. (2003). The Strategic Equivalence of Rent-Seeking, Innovation, and Patent-Race Games. Games and Economic Behavior, 44, 217-226.

Che, Y.K., & Gale, I. (2000). Difference-form contests and the robustness of all-pay auctions, Games and Economic Behavior, 30, 22-43.

Dasgupta, A., & Nti, K.O. (1998). Designing an optimal contest. European Journal of Political Economy, 14, 587–603. Fullerton, R.L., & McAfee, R.P. (1999). Auctioning Entry into Tournaments. Journal of Political Economy, 107, 573-605.

Gerchak, Y., & He, Q.M. (2003). When will the range of prizes in tournaments increase in the noise or in the number of players? International Game Theory Review, 5, 151-166.

Hillman, A., & Riley, J.G., (1989). Politically contestable rents and transfers. Economics and Politics, 1, 17-40.

Hirshleifer, J., & Riley, J. G. (1992). The analytics of uncertainty and information. New York: Cambridge University Press.

Konrad, K.A. (2009). Strategy and Dynamics in Contests. Oxford University Press.

Lazear, E., and Rosen, S. (1982). Rank-Order Tournaments as Optimum Labor Contracts, Journal of Political Economy, 89, 841-864.

Long, N.V., & Vousden, N. (1987). Risk-averse sent seeking with shared rents. Economic Journal, 97, 971 -985.

O’Keefe, Mary, W. Kip Viscusi and Richard J. Zeckhauser (1984). Economic contests: comparative reward schemes, Journal of Labor Economics, 2, 27-56.

Rosen, S. (1986). Prizes and incentives in elimination tournaments. American Economic Review, 76, 701-715.

Skaperdas, S. (1996). Contest Success Functions. Economic Theory, 7, 283-290.

Tullock, G. (1980). Efficient Rent Seeking. In James M. Buchanan, Robert D. Tollison, Gordon Tullock, (Eds.), Toward a theory of the rent-seeking society. College Station, TX: Texas A&M University Press, pp. 97-112.

Zheng, X. & T. Vukina (2007). Efficiency gains from organizational innovation: Comparing ordinal and cardinal tournament games in broiler contracts. International Journal of Industrial Organization, 25, 843-859.