Endogenous Group Formation in Contests: Unobservable Sharing Rules

20 Pages Posted: 28 Apr 2016

Date Written: Summer 2016

Abstract

We study contests in which players compete by expending irreversible effort to win a prize, the prize is awarded to one of the players, the winner shares the prize with other players in his group, if any, and each group's sharing rule is unobservable to the other groups and the singletons, if any, when the players expend their effort. The number of groups, their sizes, and the number of singletons are exogenous in the first model, whereas they are endogenous in the second model. We show that group formation occurs if the number of players is four or smaller, but does not occur otherwise. We examine the effect of endogenous group formation on total effort level and the profitability of endogenous group formation. In each of the two models, comparing the outcomes of the case of unobservable sharing rules with those of the case of observable sharing rules, we show that the two cases yield quite different outcomes.

Suggested Citation

Baik, Kyung Hwan, Endogenous Group Formation in Contests: Unobservable Sharing Rules (Summer 2016). Journal of Economics & Management Strategy, Vol. 25, Issue 2, pp. 400-419, 2016. Available at SSRN: https://ssrn.com/abstract=2771441 or http://dx.doi.org/10.1111/jems.12150

Kyung Hwan Baik (Contact Author)

Sungkyunkwan University ( email )

Department of Economics
Seoul, 110-745
Korea, Republic of (South Korea)
+82-2-760-0432 (Phone)
+82-2-744-5717 (Fax)

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