1 CONTESTS WITH RANDOM NOISE AND A SHARED PRIZE

This paper introduces a contest with random noise and a shared prize that combines features of Tullock (1980) and Lazear and Rosen (1981). As in Lazear and Rosen the effort expended by a player is observed with noise, but here players who expend some positive effort receive a share of the prize according to their relative performance. The share of the prize is modeled as a Tullock contest success function. We show that this contest generates similar results to Lazear and Rosen. In particular, as the level of noise increases the equilibrium effort decreases. We also show that, as the noise variance approaches to zero, the equilibrium effort in a contest with a random noise approaches to the equilibrium effort of a simple lottery contest