The distribution of talent across contests

Abstract

Do the contests with the largest prizes attract the most able contestants? To what extent do contestants avoid competition? In this paper, we show, theoretically and empirically, that the distribution of abilities plays a crucial role in determining contest choice. Sorting exists only when the proportion of high-ability contestants is sufficiently small. As this proportion increases, contestants shy away from competition and sorting decreases, such that, reverse sorting becomes a possibility. We test our theoretical predictions using a large panel data set containing contest choice over three decades. We use exogenous variation in the participation of highly-able competitors to provide empirical evidence for the relationship among prizes, competition, and sorting.