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 identitydependent loss value. It is assumed that the identity-dependent value a⁄ects the player whether or not he participates in the contest. We examine the e⁄ects of these externalities on the participation of players in the contest, and nd a paradoxical behavior according to which although a negative (positive) loss value of a player decreases (increases) his expected payo⁄, it may only encourage (discourage) him to participate in the contest and never discourage (encourage) him. On the other hand, this player s loss value may only discourage (encourage) the players of the other type to participate in the contest