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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 13, No. 2, pp.123-134
ISSN: 1225-0279 (Print)
Print publication date 31 May 2000
Received Jan 2000 Revised Mar 2000

Contests with Externalities

Sanghack Lee
Professor, Division of International Trade, School of Economics, Kookmin University, Seoul 136-702, Korea, Tel: +82-2-910-4546, Fax: +82-2-910-4519 slee@kmu.kookmin.ac.kr

JEL Classification: D62, D71, D72

Abstract

This paper examines contests in which aggregate efforts generate positive externalities to participants. In such contests the equilibrium effort may exceed or fall short of the socially optimal level of effort. This paper derives the relationship between the equilibrium effort, the size of prize, and the socially optimal level of effort. The equilibrium effort proves to exceed the social optimum when it is less than the prize times the exponent R of the Tullock (1980) contest-success function. On the other hand, when the equilibrium effort is greater than the prize times the exponent R, it indeed falls short of the social optimum.

Keywords:

Contest, Externality, Social optimum

Acknowledgments

I wish to thank K. H. Baik, J. H. Kang and two anonymous referees for their valuable comments and suggestions on an earlier version. Financial support from Kookmin University is gratefully acknowledged.

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