Endogenous association in contests with inequality effects of status

Abstract

A population of agents is stratified in a two-layer status hierarchy, and they form couples to participate in contests to win a prize (of recognition). Partners in a couple can have equal or different status, they compete together against all the other couples, and possibly also between them to appropriate the prize. Status differences generate inequalities due to an external bias in evaluation of the contestants -- the Matthew effect -- and to a bias internal to the couple due to the asymmetry of power when dividing the prize -- the power effect. We relate agents' equilibrium investments to win the contest and their efforts to appropriate the prize to the number of contestants and to the distribution of status among them, further revealing the endogenous formation of homophilous and heterophilous associations. Our analysis reveals that the differences in status are only reflected in the agents' strategic behavior and not in the outcome of the contest (among the couples) and in the allocation of the prize (within the couple). Moreover, the status homophily principle holds true only in small populations where status is concentrated among few agents.