The Ponds Dilemma

59 Pages Posted: 28 Oct 2015

See all articles by John Morgan

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute

Felix Várdy

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: September 30, 2015

Abstract

Is it better to be a big fish in a small pond or a small fish in a big pond? To find out, we study self-selection into contests among a large population of heterogeneous agents. Our simple and highly tractable model generates many testable and sometimes surprising predictions. For example: 1) Entry into the big pond – in terms of show-up fees, number or value of prizes – is non-monotonic in ability; 2) Entry into the more meritocratic (i.e., discriminatory) pond is likewise non-monotonic, exhibiting two interior extrema and disproportionately attracting contestants of very low ability; 3) Changes in reward structures can produce unexpected selection effects. For instance, offering higher show-up fees may lower entry, while raising the value of prizes or making a contest more meritocratic may lower the average ability of entrants.

JEL Classification: J240, D440

Suggested Citation

Morgan, John and Sisak, Dana and Várdy, Felix, The Ponds Dilemma (September 30, 2015). CESifo Working Paper Series No. 5539. Available at SSRN: https://ssrn.com/abstract=2681064

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Felix Várdy (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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