The Korean Journal of Economic Studies
Contest with Dependent Preferences and Asymmetric Abilities of the Players
Sung-Hoon Park(Chosun University), Myunghoon Lee(Korea University)Year 2011Vol. 59No. 4
Abstract
In a contest model where players of asymmetric abilities vie for a prize, we analyze how players’ optimal effort levels are affected by their exogenous DPI (degree of altruism or envy) and whether they would endogenously choose to be altruistic or envious. For exogenous DPI, we obtain the following findings from search for Nash equilibrium that maximizes each player’s expected utility. ① For bilaterallydependent preference with identical DPI, players’ effort levels fall with widening ability divide. ② For unilaterally-dependent preference, as the preference-dependent player’s DPI ascends, the narrowly self-interested player’s effort level drops or picks up as he is a favorite or an underdog. In case of endogenous DPI, the following conclusions are derived by solving for the optimal DPI that maximizes each player’s expected payoff. ① For bilaterally-dependent preference, players with identical ability choose zero effort levels. Asymmetric abilities, meanwhile, fail to produce optimal effort levels. ② For unilaterally-dependent preference, the preference-dependent player adopts altruism or envy as she is a poor-hand or a relatively-goodhand. The preference-dependent player who is a predominantly-good-hand wins the contest by default, as the narrowly self-interested player withdraws.