Simple Equilibria in General Contests
56 Pages Posted: 19 Dec 2019 Last revised: 17 May 2021
Date Written: May 17, 2021
We show how symmetric equilibria emerge in general two-player contests in which skill and effort are combined to produce output according to a general production technology and players have skills drawn from different distributions. We also show how contests with heterogeneous production technologies, cost functions and prizes can be analyzed in a surprisingly simple manner using a transformed contest that has a symmetric equilibrium. Our paper provides intuition regarding how the contest components interact to determine the incentive to exert effort, sheds new light on classic comparative statics results, and discusses the implications for the optimal composition of teams.
Keywords: contest theory, symmetric equilibrium, heterogeneity, risk, decision theory
JEL Classification: C72, D74, D81, J23, M51
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