Payoff Shares in Two-Player Contests
University of Basel, Faculty of Business and Economics, WWZ Discussion Paper 2014/11
10 Pages Posted: 22 Sep 2015
Date Written: December 15, 2014
In contest models with symmetric valuations, equilibrium payoffs are positive shares of the value of the prize. In contrast to a bargaining situation, these shares sum to less than one because a share of the value is lost due to rent-dissipation. We ask: can every such division into payoff shares arise as the outcome of the unique pure-strategy Nash equilibrium of a simple asymmetric contest in which contestants differ in the effectiveness of their efforts? For two-player contests the answer is shown to be positive.
Keywords: Contests, Pure-Strategy Equilibrium, Rent-Dissipation
JEL Classification: C72, D72, D74
Suggested Citation: Suggested Citation