Endogenous Group Formation in Experimental Contests

52 Pages Posted: 1 Nov 2012 Last revised: 24 Oct 2014

See all articles by Luisa Herbst

Luisa Herbst

Max Planck Institute for Tax Law and Public Finance

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Florian Morath

Department of Public Finance, University of Innsbruck; Max Planck Institute for Tax Law and Public Finance

Date Written: October 30, 2012

Abstract

We experimentally study endogenous alliance formation and contest effort choices in a generic three-player contest. Differences in intrinsic or extrinsic incentives to expend effort cause self-selection. Weakly motivated players have an incentive to enter into an alliance and to free-ride on strongly motivated players; hence, strong players prefer to stand alone. Self-selection has direct consequences for effort in endogenously formed alliances. But we also find evidence of an effort stimulating effect if players endogenously form an alliance, which is in line with theories of in-group favoritism. The experimental evidence on self-selection is in conformity with a theory analysis of the game.

Keywords: endogenous group formation, contest, conflict, alliance, experiment, moral hazard problem, free-riding, in-group favoritism

JEL Classification: D72, D74

Suggested Citation

Herbst, Luisa and Konrad, Kai A. and Morath, Florian, Endogenous Group Formation in Experimental Contests (October 30, 2012). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2012-10, Available at SSRN: https://ssrn.com/abstract=2166206 or http://dx.doi.org/10.2139/ssrn.2166206

Luisa Herbst (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

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London, EC1V 7RR
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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Florian Morath

Department of Public Finance, University of Innsbruck ( email )

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

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