Hybrid All-Pay and Winner-Pay Contests
In: Lagerlöf , J N M 2020 , ' Hybrid All-Pay and Winner-Pay Contests ' , American Economic Journal: Microeconomics , vol. 12 , no. 4 , pp. 144-169 . https://doi.org/10.1257/mic.20180107
In many contests in economic and political life, both all-pay and winner-pay expenditures matter for winning. This paper studies such hybrid contests under symmetry and asymmetry. The symmetric model assumes very little structure but yields a simple closed-form solution. More contestants tend to lead to substitution toward winner-pay investments, and total expenditures are always lower than in the corresponding all-pay contest. With a biased decision process and two contestants, the favored contestant wins with a higher likelihood, chooses less winner-pay investments, and contributes more to total expenditures. An endogenous bias that maximizes total expenditures disfavors the high-valuation contestant but still makes her the more likely one to win.