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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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    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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    Keywords: selection contest; asymmetric players; risk aversion;

    Find related papers by 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

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    1. Hans K. Hvide, 2002. "Tournament Rewards and Risk Taking," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 877-898, October.
    2. 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.
    3. Skaperdas, Stergios & Gan, Li, 1995. "Risk Aversion in Contests," Economic Journal, Royal Economic Society, vol. 105(431), pages 951-62, July.
    4. 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.
    5. Cornes, Richard & Hartley, Roger, 2003. "Risk Aversion, Heterogeneity and Contests," Public Choice, Springer, vol. 117(1-2), pages 1-25, October.
    6. Hvide, H.K. & Kristiansen, E.G., 1999. "Risk Taking in Selection Contests," Papers 5-99, Tel Aviv.
    7. Fabella, Raul V., 1992. "A note on the Tullock dissipation rate," Journal of Economic Behavior & Organization, Elsevier, vol. 19(2), pages 245-249, October.
    8. 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.
    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. 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.
    11. Marco Runkel, 2006. "Optimal contest design, closeness and the contest success function," Public Choice, Springer, vol. 129(1), pages 217-231, October.
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