Transitional Dynamics in a Tullock Contest with a General Cost Function
AbstractThis paper constructs and analyzes open-loop equilibria in an infinitely repeated Tullock contest in which two contestants contribute efforts to accumulate individual asset stocks over time. To investigate the transitional dynamics of the contest in the case of a general cost function, we linearize the model around the steady state. Our analysis shows that optimal asset stocks and their speed of convergence to the steady state crucially depend on the elasticity of marginal effort costs, the discount factor and the depreciation rate. In the case of a cost function with a constant elasticity of marginal costs, a lower discount factor, a higher depreciation rate and a lower elasticity imply a higher speed of convergence to the steady state. We further analyze the effects of second prizes in the contest. A higher prize spread increases individual and aggregate asset stocks, but does not alter the balance of the contest in the long run. During the transition, a higher prize spread increases asset stocks, produces a more balanced contest in each period and increases the speed of convergence to the steady state.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 11 (2011)
Issue (Month): 1 (August)
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Web page: http://www.degruyter.com
Other versions of this item:
- Martin Grossmann & Markus Lang & Helmut Dietl, 2009. "Transitional Dynamics in a Tullock Contest with a General Cost Function," Working Papers 0117, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Dec 2010.
- Martin Grossmann & Markus Lang & Helmut Dietl, 2009. "Transitional Dynamics in a Tullock Contest with a General Cost Function," Working Papers 0032, University of Zurich, Center for Research in Sports Administration (CRSA), revised Dec 2010.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Martin Grossmann, 2011. "Endogenous Liquidity Constraints in a Dynamic Contest," Working Papers 0148, University of Zurich, Institute for Strategy and Business Economics (ISU).
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