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Selective Incentives and Intra-Group Heterogeneity in Collective Contents

Shmuel Nitzan () and Kaoru Ueda

No HIAS-E-24, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

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."

Keywords: collective contest; selective incentives; intra-group heterogeneity; cost-sharing; elasticity of marginal costs (search for similar items in EconPapers)
JEL-codes: D70 D71 D72 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2016-03-31
New Economics Papers: this item is included in nep-cdm
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