Contests with Endogenously Valued Prizes: The Case of Pure Public Goods

The literature on contests has focused primarily on the technology of the contest and perfectly divisible private rewards valued at a constant rate. This paper extends the analysis by explicitly modeling tastes in contests over pure public goods. Since the prize is embodied in a good, its value is endogenously determined. The interaction between tastes and technology leads to nonconvexities and possibly corner solutions so that individual participation in lobbying is not guaranteed. Sufficient conditions for interior solutions involve preference restrictions. Under these conditions endogenous valuation of the prize leads to income effects that limit free riding as the group expands, causing its lobbying expenditures to increase. Total expenditure on lobbying by both groups also increases as one or both expands.