Contests with group-specific public-good prizes

Abstract

We examine the equilibrium effort levels of individual players and groups in contests in which n groups compete to win a group-specific public-good prize, the individual players choose their effort levels simultaneously and independently, and the probability of winning for each group depends on the groups’ effort levels. In the basic model, we show that, in each group, only the highest-valuation players expend positive effort and the rest expend zero effort; there is underinvestment in the contest for the group as a whole. Next, in the main model in which the players are budget-constrained, we show that low-valuation players free ride on high-valuation players’ contributions, not vice versa, but the free-rider problem is “alleviated” as compared with the basic model.