## Abstract

In the contest literature, sabotage is defined as a deliberate and costly activity that damages the opponent’s likelihood of winning the contest. Most of the existing results suggest that, anticipating a possible sabotage, contestants would be discouraged from exerting high efforts. In this paper we investigate the act of sabotage in a team contest wherein team members exert costly efforts as a contribution to their team’s aggregate effort, which in turn determines the contest’s outcome. For the baseline model with no sabotage, there exists a corner equilibrium implying a free-rider problem in each team. As for the model with sabotage, our characterization of Nash equilibrium reveals two important results: (i) a unique interior equilibrium exists so that the free-rider problem no longer is a concern and (ii) the discouragement effect of sabotage vanishes for some players. On top of those conclusions, we investigate the team owner’s problems of prize allocation and team formation with the objective being to maximize his team’s winning probability.

## Keywords

Team contests Sabotage Tullock contests Free riding Discouragement effect Encouragement effect## JEL Classification

C72 D74## Notes

### Acknowledgements

We would like to thank the editor and an anonymous reviewer, as well as seminar participants at ADA University, Bilgi University, Bosphorus Workshop on Economic Design, and Koç University Winter Workshop in Economics. The usual disclaimer applies.

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