Heterogeneous outside options in contests |
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| Institution: | 1. Department of Business Administration, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland;2. School of Business, Lucerne University of Applied Sciences and Arts, Zentralstrasse 9, 6002 Lucerne, Switzerland;1. Vienna University of Economics and Business, Department of Economics, Welthandelsplatz 1, A-1020 Vienna, Austria;2. Austrian Institute of Economic Research (WIFO), Arsenal, Objekt 20, A-1030 Vienna, Austria;3. University of Vienna, Department of Economic Sociology, Oskar Morgenstern Platz 1, A-1090 Vienna, Austria;1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China;2. Shenzhen Research Institute, The Chinese University of Hong Kong, Shenzhen, China;3. College of Public Administration, Zhejiang University, Hangzhou, China;4. Changsheng Fund Management, Beijing, China |
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| Abstract: | This article describes a large number of contestants with high and low levels of talent who individually decide to enter a contest or take their heterogeneous outside options. We derive a critical condition for which only high types, only low types or both types participate in the contest. If a contest organizer is worried about the type participating in the contest, then he/she should provide a contest with low noise to attract high types. However, if a contest organizer's objective is to maximize the individual effort, he/she will not necessarily prefer to have the high types in the contest. |
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