Contests with a Prize Externality and Stochastic Entry

No 14-19, Working Papers from Department of Economics, West Virginia University

Abstract: We analyze a contest with stochastic participation and a prize externality. A unique symmetric equilibrium exists in the contest. We demonstrate that the presence of a prize externality affects individual equilibrium spending but active participants always face the same expected payoff as in a contest without a prize externality. A positive prize externality gives a higher impact on individual equilibrium spending than a negative prize externality. Regardless of the existence and the sign of a prize externality, ex-post over-dissipation occurs if the actual number of participants is sufficiently large. Independent of the prize externality's sign, active participants spend less but face a higher payoff compared to a fixed-participation contest with the same expected number of players.

Keywords: Tullock contest; Prize externality; stochastic entry (search for similar items in EconPapers)
JEL-codes: C72 D72 D82 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2014-05
New Economics Papers: this item is included in nep-exp, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wvu:wpaper:14-19

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