HIAS GLECS

HIAS-E-24

Selective Incentives and Intra-Group Heterogeneity in Collective Contents

Abstract:

A group taking part in a contest has to confront the collective-action problem among its members and devices of selective incentives are possible means of resolution. We argue that heterogeneous prize-valuations in a competing group normally prevent effective use of such selective incentives. To substantiate this claim, we adopt cost sharing as a means of incentivizing the individual group members. We confirm that homogeneous prize valuations within a group result in a cost-sharing rule inducing the first-best individual contributions. As long as the cost-sharing rule is dependent only on the members’ contributions, however, such a first-best rule does not exist for a group with intra-group heterogeneity. Our main result clarifies how unequal prize valuations affect the cost-sharing rule and, in particular, the degree of cost sharing. The results are related to the fact that heterogeneous valuations of the prize in a group cause inappropriate realization of voluntary contributions, a situation known as the “exploitation of the great by the small.”

Report No.: HIAS-E-24
Author(s): Shmuel Nitzan(a), (b)
Kaoru Ueda(c)
Affiliation: (a) Department of Economics, Bar Ilan University, Ramat Gan, Israel
(b) Hitotsubashi Institute for Advanced Study, Hitotsubashi University
(c) Faculty of Economics, Nanzan University, Nagoya, Aichi 466-8673 Japan
Issued Date: March 2016
Keywords: collective contest, selective incentives, intra-group heterogeneity, cost shar- ing, elasticity of marginal costs, the “exploitation of the great by the small.”
JEL: D70, D71, D72
Links: PDF, HERMES-IR, RePEc