A delegated agent in a winner-take-all contest

Abstract

We consider a winner-take-all contest extended with a principal-agent re-lationship. One of the two players, say player 1, offers a contract to an agent to act in the contest as a delegate on his behalf. The wage offered to the agent is deliberately chosen by player 1. We characterize the Nash equilibrium of this contest and com-pare its properties with those of the Nash equilibrium of the corresponding standard contest in which both players compete themselves. We show that the expected utility of player 1 is larger in the contest with a delegate if he is strongly risk averse with respect to his money income and moreover the contested prize is large enough.