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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 32, No. 3, pp.323-336
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2019
Received 21 Jan 2019 Revised 16 May 2019 Accepted 09 Jun 2019

Contests with Linear Externality in Prizes

Sung-Hoon Park ; Sanghack Lee
Sung-Hoon Park, Professor, Department of Economics, Chosun University, 309 Pilmun-daero, Dong-gu, Gwangju, 501-759, South Korea, Tel: +82-62-230-6839 park@chosun.ac.kr
Sanghack Lee, Corresponding author, Professor, Department of International Commerce, Kookmin University, 77 Jeongneung-ro, Seongbuk-gu, Seoul 136-702, South Korea, Tel: +82-2-910-4546 slee@kookmin.ac.kr

JEL Classification: D72

Abstract

This study examines contests in which prizes are affected linearly by aggregate effort. In particular, this research analyzes a contest among individuals as a benchmark to scrutinize the effects of prize externality and sharing-rule information on rent-dissipation rate and social welfare. Thereafter, the current study investigates two types of group contest with linear prize externality: one with private information on intra-group sharing rules and the other with public information on intra-group sharing rules. Results indicate as follows. (1) An increase in prize externality increases rent-dissipation rate but has no effect on social welfare. (2) The group contest with private information on sharing rules yields higher social welfare and lower rent-dissipation rate than the one with public information on sharing rules.

Keywords:

Group contest, Linear externality in prize, Intra-group sharing rule, Private information on sharing rules, Public information on sharing rules

Acknowledgments

We would like to thank an anonymous reviewer for constructive comments and suggestions. Any remaining errors are our own responsibility.

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