The theory of contests: a survey

Abstract

This paper provides an introduction to the theory of contests in a unified framework. In particular we present the basic model and study its main properties from which we derive various applications. The literature on this topic is vast and we make no attempt to cover all issues. Therefore many good papers and interesting topics are not covered. The interested reader can consult the surveys of Nitzan (1994) and Konrad (2006) for additional issues and references. A part of economics (e.g., general equilibrium) studies situations where property rights are well defined and agents voluntarily trade rights over goods or produce rights for new goods. This approach has produced very important insights into the role of markets in resource allocation such as the existence and efficiency of competitive equilibrium, the optimal specialization under international trade, the role of prices in providing information to the agents, etc. There are other situations, though, where agents do not trade but rather fight over property rights. In these situations agents can influence the outcome of the process by means of certain actions such as investment in weapons, bribing judges/politicians, hiring lawyers, etc. These situations are called Contests. The literature has developed