The Ponds Dilemma

Authors


  • For valuable comments and suggestions we thank Thomas Chapman, Josse Delfgaauw, Paolo Dudine, Robert Dur, Bob Gibbons, Mitchell Hoffman, Sam Ouliaris, Sander Renes, two anonymous referees and seminar participants at Tinbergen Amsterdam, Bielefeld, Cambridge, CEU Budapest, LSE, NOVA Lisbon and Rotterdam. Dana Sisak gratefully acknowledges the financial support of the Swiss National Science Foundation through grant PBSGP1-130765.

Abstract

Is it better to be a big fish in a small pond or a small fish in a big pond? To find out, we study self-selection into contests. Our simple model predicts that: (i) entry into the big pond – in terms of show-up fees, number or value of prizes – is non-monotonic in ability; (ii) entry into the more meritocratic pond is likewise non-monotonic, exhibiting two interior extrema and disproportionately attracting very low ability types; and (iii) changes in rewards can produce unexpected effects, e.g. higher show-up fees may lower entry, while higher prizes or more meritocracy may lower the average ability of entrants.

Ancillary