The Contest Winner: Gifted or Venturesome?

*Marco Sahm
Departement of Business and Economics, TU Munich

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     Last modified: December 1, 2010
     Presentation date: 03/13/2011 12:00 PM in NH 1140, Session C
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Abstract
The paper examines the chance of winning a Tullock-contest when participants differ in both their talent and their attitude towards risk. For the case of CARA preferences, it is shown that the winning probability may be higher for a low-skilled agent with a low degree of risk aversion than for a high-skilled agent with a high degree of riskaversion. Such an outcome often is undesirable. It will occur if and only if the agents’ ratio of degrees of risk aversion is larger than their ratio of skill levels and the rent of the contest is sufficiently high.