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The Contest Winner: Gifted or Venturesome?

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  • Marco Sahm
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    Abstract

    This paper examines the chance of winning a Tullock-contest when participants differ in both their talent and their attitude towards risk. For the case of CARA preferences, it is shown that the winning probability may be higher for a low-skilled agent with a low degree of risk aversion than for a high-skilled agent with a high degree of risk-aversion. Such an outcome often is undesirable. It will occur if and only if the agents’ ratio of degrees of risk aversion is larger than their ratio of skill levels and the rent of the contest is sufficiently high.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-12/cesifo1_wp3285.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3285.

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    Date of creation: 2010
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    Handle: RePEc:ces:ceswps:_3285

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    Related research

    Keywords: selection contest; asymmetric players; risk aversion;

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    1. Runkel, Marco, 2006. "Total effort, competitive balance and the optimal contest success function," European Journal of Political Economy, Elsevier, vol. 22(4), pages 1009-1013, December.
    2. Skaperdas, Stergios & Gan, Li, 1995. "Risk Aversion in Contests," Economic Journal, Royal Economic Society, vol. 105(431), pages 951-62, July.
    3. Marco Runkel, 2006. "Optimal contest design, closeness and the contest success function," Public Choice, Springer, vol. 129(1), pages 217-231, October.
    4. Hans K. Hvide, 2000. "Tournament Rewards and Risk Taking," Econometric Society World Congress 2000 Contributed Papers 0163, Econometric Society.
    5. Fabella, Raul V., 1992. "A note on the Tullock dissipation rate," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 245-249, October.
    6. Takeshi Yamazaki, 2008. "On the Existence and Uniqueness of Pure-Strategy Nash Equilibrium in Asymmetric Rent-Seeking Contests," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(2), pages 317-327, 04.
    7. James W. Bono, 2008. "Sales contests, promotion decisions and heterogeneous risk," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(4), pages 371-382.
    8. Cornes, Richard & Hartley, Roger, 2003. " Risk Aversion, Heterogeneity and Contests," Public Choice, Springer, vol. 117(1-2), pages 1-25, October.
    9. Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November.
    10. Long, Ngo Van & Vousden, Neil J, 1987. "Risk-Averse Rent Seeking with Shared Rents," Economic Journal, Royal Economic Society, vol. 97(388), pages 971-85, December.
    11. Hvide, H.K. & Kristiansen, E.G., 1999. "Risk Taking in Selection Contests," Papers 5-99, Tel Aviv.
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