Distributional preferences in probabilistic and share contests

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We analyze Nash equilibria of share and probabilistic contests when players have distributional preferences. If players are sufficiently similar, distributional preferences create multiple equilibria. For the case of only mildly heterogeneous players, equilibrium effort can be lower as well as higher than effort with standard, selfish preferences. These findings can explain three anomalies in empirical tests of the probabilistic prize-seeking game, namely the large variance of effort levels (overspreading), individual spending that exceeds the Nashequilibrium prediction (overspending), and aggregate spending that exceeds the value of the prize (overdissipation), and they are also in line with the findings for share contests. If players are sufficiently heterogeneous, the game has a unique equilibrium that is more egalitarian than the standard, selfish Nash equilibrium. It turns out that the less talented competitor may win the larger share of the prize if his inequality aversion is sufficiently strong. We analyze how the equilibria evolve if the number of players gets larger and how sequential moves influence behavior. Two new insights follow from the analysis of the sequential-move game. First, sequential moves act as a coordination device if there are multiple simultaneous equilibria, and second the inequality aversion of the more egalitarian player can be used as a commitment device for low effort. This effect can reverse the conventional wisdom that the underdog should lead. Terms of use: Documents inJEL-Code: D030, D720, D740.

Learning in rent-seeking contests with payoff risk and foregone payoff information

“…Players with other-regarding preferences could care about the distribution of expected payoffs (Hoffmann and Kolmar, 2017) or about realized payoffs (Herrmann andOrzen, 2008, Fonseca, 2009). Some studies assume preferences over the distribution of total earnings (Herrmann and Orzen, 2008, Fonseca, 2009, Mago et al, 2016Shaffer, 2006, while others assume preferences only over the distribution of lottery earnings, net of investment costs (Grund andSliwka, 2005, Hoffmann andKolmar, 2017). We assume preferences over ex-post outcomes, including earnings from all sources.…”

Lobbying policy makers: Share versus lottery contests

“…This paper also relates to another strand of literature that compares alternative contests (Baik & Lee, 2000;Fu & Lu, 2012;Gradstein & Konrad, 1999;Hoffmann & Kolmar, 2017;Liu & Treich, 2021). To the best of our knowledge, this theoretical literature has explored this comparative analysis assuming risk-neutral contestants, except for Liu and Treich (2021), who assume risk-averse contestants.…”