Rent-Seeking Group Contests with Private Information

A model of rent-seeking group contest is developed. The contested good is a local public good. Individuals have private information concerning their valuation for the contested good. I restrict effort levels to be dichotomous, allowing me in turn tractability of the equilibria. I show existence of an equilibrium. All contestants exert positive expected effort in equilibrium. From simulation results I find that the presence of large groups of contestants decreases the average expected effort in equilibrium. I also show that the Olson’s paradox, which asserts that groups of large size are less effective at winning a contest than small groups, may or may not hold. If individuals valuations are drawn from distribution where large valuations have a sufficiently high density, the Olson paradox holds.