Contests with Identity-Dependent Externalities

We study lottery (Tullock) contests with identity-dependent externalities. We consider two types of players where the players of the same type have the same winning value as well as the same identity-dependent loss value. It is assumed that the identity-dependent value affects the player whether or not he participates in the contest. We examine the effects of these externalities on the participation of a player in the contest, and find that a negative loss value may only encourage him to participate in the contest and never discourages them. On the other hand, this player's loss value may only discourage the players of the other type to participate in the contest. Furthermore, independent of the players' values of winning, there are always identity-dependent loss values that will ensure the participation of all the players in the contest. Similar results hold for positive loss values