Essays in Contest Theory

Abstract

The majority of this work focuses on the theoretical analysis of collective action, group efficiency, and incentive mechanisms in team contests where individual outlays of heterogeneous agents are not observable. The reward allocation within the group is instead dependent on observable worker characteristics, modeled as individual abilities, as well as on the observable level of aggregate output. I study the incentives for free-riding and the group-size paradox under a very general set of intra-team allocation rules. I further derive the optimal allocation mechanism which rewards agents according to a general-logit specification based on their relative ability. I derive conditions under which a team's performance is most sensitive to the ability of its highest-skill members, while at the same time higher spread in the distribution of ability has a positive effect on group output. In the final chapter I shift attention to the problem of optimal player order choice in dynamic pairwise team battles. I show that even if player order choice is conducted endogenously and sequentially after observing the outcomes of earlier rounds, then complete randomization over remaining agents is always a subgame perfect equilibrium. The zero-sum nature of these type of contests implies that expected payoffs for each team are independent of whether the contest matching pairs are determined endogenously and sequentially or announced before the start of the game. In both cases the ex-ante payoffs are equivalent to those when an independent contest organizer randomly draws the matches.