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Equilibrium Contingent Compensation in Contests with Delegation

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  • Kyung Hwan Baik

Abstract

We consider two‐player contests in which each player hires a delegate who expends his effort to win a prize on the player's behalf. Endogenizing delegation contracts, we focus on the equilibrium contracts between the players and their delegates. We first show that each player's equilibrium contract is a no‐win‐no‐pay contract. Then, we examine the delegates' equilibrium compensation spreads, effort levels, probabilities of winning, expected payoffs, and the players' equilibrium expected payoffs. We show that economic rents for the delegates may exist.

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  • Kyung Hwan Baik, 2007. "Equilibrium Contingent Compensation in Contests with Delegation," Southern Economic Journal, John Wiley & Sons, vol. 73(4), pages 986-1002, April.
    • Handle: RePEc:wly:soecon:v:73:y:2007:i:4:p:986-1002
    DOI: 10.1002/j.2325-8012.2007.tb00814.x
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    References listed on IDEAS

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    Cited by:

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    2. Rusche, Christian, 2011. "Does Delegation Help to Prevent Spiteful Behavior?," Ruhr Economic Papers 270, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. T. Guse & B. Hehenkamp, 2006. "The strategic advantage of interdependent preferences in rent-seeking contests," Public Choice, Springer, vol. 129(3), pages 323-352, December.
    4. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    5. Evangelos Mitrokostas & Emmanuel Petrakis, 2008. "Do Firms' Owners Delegate both Short-Run and Long-Run Decisions to Their Managers in Equilibrium?," Working Papers 0815, University of Crete, Department of Economics.
    6. Sung-Hoon Park & Jason F. Shogren, 2021. "A Virtuous Circle of Governance Contests with Externalities," Sustainability, MDPI, vol. 13(14), pages 1-12, July.
    7. Lambert Schoonbeek, 2007. "Delegation with multiple instruments in a rent-seeking contest," Public Choice, Springer, vol. 131(3), pages 453-464, June.
    8. Daniel Cardona & Jenny De Freitas & Antoni Rubí-Barceló, 2018. "Polarization or Moderation? Intra-group heterogeneity in endogenous-policy contest," DEA Working Papers 87, Universitat de les Illes Balears, Departament d'Economía Aplicada.

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