Target Setting in Contests with Sabotage

We study a novel target prize contest between two heterogeneous contestants featuring sabotage. The contestants first choose a target prize should they win the contest, then exert two types of effort: (i) productive effort which directly enhances their performance; and (ii) destructive effort which reduces the opponent’s performance. While both types of effort incur constant marginal costs (in the respective levels of effort), the productive effort’s marginal cost is an increasing function of the target prize. We show that when contestants are allowed to choose their own target prize, they do not sabotage each other in any subgame perfect equilibrium.