Let’s (Not) Escalate This! Leadership and Communication in a Group Contest

Abstract

Economic and social situations where groups have to compete are ubiquitous. Such group contests create both a coordination problem within and between groups. Introducing leaders may help to mitigate these coordination problems, but little is known about the effect of leadership in group contests. In a group contest experiment, we compare two types of leadership---leading-by-example and transactional leadership---and also investigate the effect of communication between leaders under both leadership styles. We find that the introduction of leaders mostly increases contest investment. Transactional leaders increase followers' investment through the allocation of a relatively larger share of the prize to followers who have invested more. Communication between leaders decreases contest investments when there is leading-by-example but not when there is transactional leadership. Overall, leaders do not mitigate the over-investment problem in group contests.

Keywords: Rent-seeking, Group Contest, Leadership