Abstract
Many economic, political and social interactions can be modeled as a contest in which participants expend resources to win prizes. The theory of contest examines the effect of such contests on resource allocation, efficiency and social welfare. Many contests are associated with externality. The received literature has identified the size of prize, cost and the number of participants as channels through which externality is realized. This note classifies the channels of externality in contests in the received literature. This note then suggests the winning probability and the diffusion of contests as new channels of externality in contests. Specifically, the present note emphasizes the negative effect on social welfare of diffusion of rent-seeking activities.
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