The Contest Winner: Gifted or Venturesome?
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 agentsâ€™ 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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