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Resource Allocation Contests: Experimental Evidence

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  • Robert Shupp

    (Department of Agricultural, Food and Resource Economics, Michigan State University)

  • Roman M. Sheremeta

    (Argyros School of Business and Economics, Chapman University)

  • David Schmidt

    (Federal Trade Commission, Bureau of Economics)

  • James Walker

    ()
    (Indiana University, Department of Economics)

Abstract

Many resource allocation contests have the property that individuals undertake costly actions to appropriate a potentially divisible resource. We design an experiment to compare individuals’ decisions across three resource allocation contests which are isomorphic under riskneutrality. The results indicate that in aggregate the single-prize contest generates lower expenditures than either the proportional-prize or the multi-prize contest. Interestingly, while the aggregate results indicate similar behavior in the proportional-prize and multi-prize contests, individual level analysis indicates that the behavior in the single-prize contest is more similar to the behavior in the multi-prize contest than in the proportional-prize contest. We also elicit preferences toward risk, ambiguity and losses, and find that while such preferences cannot explain individual behavior in the proportional-prize contest, preferences with regard to losses are predictive of behavior in both the single-prize and multiple-prize contests. Therefore, it appears that loss aversion is correlated with behavior in the single-prize and multi-prize contests where losses are likely to occur, but not in the proportional-prize contest where losses are unlikely.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-23.

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Length: 31 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-23

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Keywords: contest; rent-seeking; experiments; risk aversion; game theory;

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