Formation of Teams in Contests: Tradeoffs Between Inter and Intra-Team Inequalities

Hideo Konishi, Chen-Yu Pan and Dimitar Simeonov ()
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Dimitar Simeonov: Bahçeşehir University

No 1061, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We consider a team contest in which players make efforts to compete with other teams for a prize, and players of the winning team divide the prize according to a prize-sharing rule. This prize-sharing rule matters in generating members’ efforts and attracting players from outside. Assuming that players differ in their abilities to contribute to a team and their abilities are observable, we analyze which team structure is realized by allowing players to move across teams. This inter-team mobility is achieved via head-hunting: a team leader can offer one of the positions to an outside player. We say that it is a successful head-hunting if the player is better off by taking the position, and the team’s winning probability is improved. A team structure is stable if there is no successful head-hunting opportunity. We show that if all teams employ the egalitarian sharing rule, then the complete sorting of players according to their abilities occurs, and inter-team inequality becomes the largest. In contrast, if all teams employ a substantially unequal sharing rule, there is a stable team structure with a small inter-team inequality and a large intra-team inequality. This result illustrates a trade-off between intra-team inequality and inter-team inequality in forming teams.

Keywords: group contest; pairwise stable matching; assortative matching; farsightedness; largest consistent set; effectiveness function (search for similar items in EconPapers)
JEL-codes: C71 C72 C78 D71 D72 D74 (search for similar items in EconPapers)
Date: 2023-11-18
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-mic and nep-spo
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