Outsourcing in contests

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, if the contest winner is expected to obtain a sufficiently large share of ex post outsourcing rents. Under reasonable assumptions, outsourcing tends also to increase the number of active contestants, strengthening the case for outsourcing to increase total contest effort. If such effort is socially wasteful, outsourcing creates a welfare trade-off between ex ante and ex post efficiency.     

Unions and Market Integration in Contests

In this paper, we study the effects of introducing endogenous costs in aTullock model of rent-seeking. We show that unions can be efficiencyimproving, and that the firms' levels of effort depend more critically uponthe number of firms participating in the contest when unions are present. Wethen study the effects of market integration in a two-country setup.Integrating two initially separate markets is shown to decrease union setwages, but is nevertheless beneficial to firms of both countries only if thereare sufficiently few contestants. However, unions and firms in one countrymight benefit from integration if their resident country is sufficiently largecompared to the post-integration market.