Sérgio O. Parreiras University of North Carolina, Chapel Hill - Hosted by Rene Kirkegaard

Title: "Drop-Out in Small and Large Contests" 

Abstract:

 We study participation in contests with heterogeneous agents. We consider an incomplete information all-pay auction model with multiple (identical) prizes where contestants either belong to group H or L; their valuations (for the prizes) are independently and, within groups, identically distributed. We provide a sufficient condition for all L contestants to drop-out – always choose zero effort. The drop-out is possible even if there is some chance that an L contestant’s valuation might be higher than the valuation of an H contestant, Pr[VL > VH] > 0. In particular, even when an L contestant is almost certain to have a higher valuation than an H contestant, Pr[VL > VH] ≈ 1, the drop-out can still happen, provided the distribution of VH has a ‘fatter upper tail’ than VL’s distribution and there are enough H-contestants relatively to the number of prizes. We show that the drop-out is invariant with the scale of the contest, only on the ratio of prizes to H contestants matters.