Document Type
Working Paper
Publication Date
5-1-2014
College/Unit
Chambers College of Business and Economics
Document Number
14-19
Department/Program/Center
Economics
Abstract
We analyze a contest with stochastic participation and a prize externality. A unique symmetric equilibrium exists in the contest. We demonstrate that the presence of a prize externality affects individual equilibrium spending but active participants always face the same expected payout as in a contest without a prize externality. A positive prize externality gives a higher impact on individual equilibrium spending than a negative prize externality. Regardless of the existence and the sign of a prize externality, ex-post over-dissipation occurs if the actual number of participants is sufficiently large. Independent of the prize externality's sign, active participants spend less but face a higher payout compared to a fixed-participation contest with the same expected number of players.
Digital Commons Citation
Che, XiaoGang and Humphreys, Brad R., "Contests with a Prize Externality and Stochastic Entry" (2014). Economics Faculty Working Papers Series. 112.
https://researchrepository.wvu.edu/econ_working-papers/112