New results on effort provision and incentivisation in Tullock two-group contests

This paper studies effort incentivisation and provision in a complete-information Tullock two-group contest. Generalised incentivisation schemes are considered that, besides distributing the prize, reward some group members by expropriating others’ private resources. Three are the main results. First, Pareto efficient zero-effort equilibria exist at some schemes that expropriate contributors to reward free-riders. Second, pure-strategy equilibria fail to exist at some other schemes with similar structure. Third, sequentiality in the determination of endogenous schemes matters only if expropriation is allowed. In that case, when schemes are sequentially set à la Stackelberg a ‘leader’s curse’ arises: the first-mover always increases its expected welfare with respect to simultaneous competition, but systematically gets less than the second-mover. Moreover, in passing from simultaneous to Stackelberg competition the probability of victory increases for the larger group and decreases for the smaller one, regardless of which of the two is the first-mover. Finally, Stackelberg equilibria imply the same odds of winning of zero-effort counterparts, but entail a welfare loss because of positive effort provision.