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A contest success function with a rent-dependent dissipation rate

Author

Listed:
  • Normann Lorenz

    (University of Trier)

Abstract

In this note a new contest success function is derived that results in investments in equilibrium that are proportional to the square of the rent, which implies a dissipation rate that is not independent of, but increasing in the rent. Only for a contest success function with this property can it be optimal to use least squares regression models to determine transfers for a risk adjustment scheme (a regulatory means to reduce risk selection in health insurance markets). A second property of this new contest success function is that winning probabilities do not depend only on the ratio or only on the difference of investments, but on both the ratio and the difference; this may make it more suitable than common contest success functions for some situations like corruption or getting tenure at a university.

Suggested Citation

  • Normann Lorenz, 2014. "A contest success function with a rent-dependent dissipation rate," Economics Bulletin, AccessEcon, vol. 34(2), pages 1091-1102.
    • Handle: RePEc:ebl:ecbull:eb-14-00059
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    References listed on IDEAS

    as
    1. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, Decembrie.
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    3. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    4. Normann Lorenz, 2014. "Using quantile regression for optimal risk adjustment," Research Papers in Economics 2014-11, University of Trier, Department of Economics.
    5. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    6. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 22, pages 649-709, Elsevier.
    7. Van de ven, Wynand P.M.M. & Ellis, Randall P., 2000. "Risk adjustment in competitive health plan markets," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 14, pages 755-845, Elsevier.
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    Cited by:

    1. Normann Lorenz, 2017. "Using Quantile and Asymmetric Least Squares Regression for Optimal Risk Adjustment," Health Economics, John Wiley & Sons, Ltd., vol. 26(6), pages 724-742, June.

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    More about this item

    Keywords

    Contest; dissipation rate; risk selection;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D0 - Microeconomics - - General

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