Contest functions: Theoretical foundations and issues in estimation

• Published in: International journal of industrial organization Vol. 31; no. 3; pp. 211 - 222
• Main Authors: Jia, Hao, Skaperdas, Stergios, Vaidya, Samarth
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.05.2013; Elsevier Sequoia S.A
• Subjects: Advertising; Classification; Conflict; Econometrics; Economic theory; Estimating techniques; Game theory; Industrial organization; Litigation; Mathematical functions; Rent-seeking; Stochastic processes; Studies; Tournaments; D74; M37; Conflict; Litigation; L41; Rent-seeking; Tournaments; L23; Advertising; D72; C72
• ISSN: 0167-7187; 1873-7986
• DOI: 10.1016/j.ijindorg.2012.06.007

Contest functions (alternatively, contest success functions) determine probabilities of winning and losing as a function of contestants' effort. They are used widely in many areas of economics that employ contest games, from tournaments and rent-seeking to conflict and sports. We first examine the theoretical foundations of contest functions and classify them into four types of derivation: stochastic, axiomatic, optimally-derived, and microfounded. The additive form (which includes the ratio or “Tullock” functional form) can be derived in all four different ways. We also explore issues in the econometric estimation of contest functions, including concerns with data, endogeneity, and model comparison. ► We review stochastic, axiomatic, and other micro-foundations of contest functions. ► We discuss how different foundations guide applications of various contest functions. ► We find ratio-form contest having broad support among various theoretical foundations. ► We also discuss salient issues relevant to empirically estimating contest functions.