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The shape of luck and competition in winner-take-all tournaments

Author

Listed:
  • Ryvkin, Dmitry

    (Department of Economics, Florida State University)

  • Drugov, Mikhail

    (Department of Economics, New Economic School / CEPR)

Abstract

In winner-take-all tournaments, agents' performance is determined jointly by effort and luck, and the top performer is rewarded. We study the impact of the ``shape of luck'' -- the details of the distribution of performance shocks -- on incentives in such settings. We are concerned with the effects of increasing the number of competitors, which can be deterministic or stochastic, on individual and aggregate effort. We show that these effects are determined by the shape of the density and failure (hazard) rate of the distribution of shocks. When shocks have heavy tails, aggregate effort can decrease in the number of competitors.

Suggested Citation

  • Ryvkin, Dmitry & Drugov, Mikhail, 2020. "The shape of luck and competition in winner-take-all tournaments," Theoretical Economics, Econometric Society, vol. 15(4), November.
    • Handle: RePEc:the:publsh:3824
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    Cited by:

    1. Drugov, Mikhail & Ryvkin, Dmitry, 2020. "How noise affects effort in tournaments," Journal of Economic Theory, Elsevier, vol. 188(C).
    2. Hanming Fang & Ming Li & Zenan Wu, 2022. "Tournament-Style Political Competition and Local Protectionism: Theory and Evidence from China," PIER Working Paper Archive 22-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    3. Drugov, Mikhail & Ryvkin, Dmitry, 2020. "Tournament rewards and heavy tails," Journal of Economic Theory, Elsevier, vol. 190(C).
    4. Yildirim, Mustafa, 2023. "When does division matter? Revisiting the optimal contest architecture," Economics Letters, Elsevier, vol. 230(C).
    5. Morgan, John & Tumlinson, Justin & Várdy, Felix, 2022. "The limits of meritocracy," Journal of Economic Theory, Elsevier, vol. 201(C).
    6. Jiao, Qian & Ke, Changxia & Liu, Yang, 2022. "When to disclose the number of contestants: Theory and experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 146-160.
    7. Rene Kirkegaard, 2023. "Financial Constraints and Multivariate Incomplete Information in the Mixture Model of Contests," Working Papers 2402, University of Guelph, Department of Economics and Finance.
    8. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Entry in group contests," Working Papers wp2020_02_01, Department of Economics, Florida State University.
    9. Bastani, Spencer & Giebe, Thomas & Gürtler, Oliver, 2022. "Simple equilibria in general contests," Games and Economic Behavior, Elsevier, vol. 134(C), pages 264-280.

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    More about this item

    Keywords

    Tournament; competition; heavy tails; stochastic number of players; unimodality; log-supermodularity; failure rate;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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