Selective Incentives and Intra Group Heterogeneity in Collective Contents
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 intra group heterogeneity. Our main result clarifies how unequal prize valuations affect the cost sharing rule and, in particular, the degree of cost sharing. The results are related to the fact that heterogeneous valuations of the prize in a group cause inappropriate realization of voluntary contributions, a situation known as the "exploitation of the great by the small."