Selective incentives and intragroup heterogeneity in collective contests

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 intragroup heterogeneity. Our main result clarifies how unequal prize valuations affect the cost-sharing rule and, in particular, the degree of cost-sharing. If the relative rate of change of the marginal effort costs is decreasing, it is reduced by intragroup heterogeneity. If the rate is increasing, the cost is fully shared, but it cannot induce the first-best contributions for the group.