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Varying the Intensity of Competition in a Multiple Prize Rent Seeking Experiment

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  • Lisa R. Anderson

    ()
    (Department of Economics, College of William and Mary)

  • Beth A. Freeborn

    ()
    (Department of Economics, College of William and Mary)

Abstract

We experimentally test a rent seeking model under five levels of competition. At one extreme, a subject’s probability of winning a prize is equal to her share of the total expenditures. At lower levels of competition, a subject’s probability of winning is affected more by her own expenditures than by the expenditures of others. Predicted expenditure levels are positively associated with higher levels of competition. Consistent with previous rent seeking experiments, we find that subjects spend significantly more than the Nash equilibrium prediction at all levels of competition. However, expenditure patterns generally follow the Nash prediction; expenditures decrease as the level of competition decreases. Our experimental design also includes a lottery choice experiment to control for subjects’ risk preference. We find that subjects who are more risk averse spend significantly less in the contest and this effect is particularly strong for female subjects

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Bibliographic Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 75.

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Length: 25 pages
Date of creation: 15 Aug 2008
Date of revision:
Handle: RePEc:cwm:wpaper:75

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Keywords: rent seeking; experiment; rent dissipation; political competition;

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References

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  1. Catherine C. Eckel & Philip J. Grossman, 2008. "Sex and Risk: Experimental Evidence," Development Research Unit Working Paper Series archive-09, Monash University, Department of Economics.
  2. David Bullock & E. Rutström, 2007. "Policy making and rent-dissipation: An experimental test," Experimental Economics, Springer, vol. 10(1), pages 21-36, March.
  3. Hillman, Arye L & Katz, Eliakim, 1984. "Risk-Averse Rent Seekers and the Social Cost of Monopoly Power," Economic Journal, Royal Economic Society, vol. 94(373), pages 104-10, March.
  4. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  5. Amegashie, J Atsu, 1999. " The Number of Rent-Seekers and Aggregate Rent-Seeking Expenditures: An Unpleasant Result," Public Choice, Springer, vol. 99(1-2), pages 57-62, April.
  6. Clark, Derek J & Riis, Christian, 1996. " A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
  7. Anderson, Lisa R. & Mellor, Jennifer M., 2008. "Predicting health behaviors with an experimental measure of risk preference," Journal of Health Economics, Elsevier, vol. 27(5), pages 1260-1274, September.
  8. Edward Millner & Michael Pratt, 1989. "An experimental investigation of efficient rent-seeking," Public Choice, Springer, vol. 62(2), pages 139-151, August.
  9. Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November.
  10. Clark, Derek J. & Riis, Christian, 1998. "Influence and the discretionary allocation of several prizes," European Journal of Political Economy, Elsevier, vol. 14(4), pages 605-625, November.
  11. John Cadigan, 2007. "Two-State Team Rent-Seeking: Experimental Analysis," Southern Economic Journal, Southern Economic Association, vol. 74(1), pages 85-103, July.
  12. R. Kenneth Godwin & Edward J. López & Barry J. Seldon, 2006. "Incorporating Policymaker Costs and Political Competition into Rent-Seeking Games," Southern Economic Journal, Southern Economic Association, vol. 73(1), pages 37–54, July.
  13. Berry, S Keith, 1993. " Rent-Seeking with Multiple Winners," Public Choice, Springer, vol. 77(2), pages 437-43, October.
  14. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November.
  15. Sun, Guang-Zhen & Ng, Yew-Kwang, 1999. " The Effect of Number and Size of Interest Groups on Social Rent Dissipation," Public Choice, Springer, vol. 101(3-4), pages 251-65, December.
  16. Anderson, Lisa R & Stafford, Sarah L, 2003. " An Experimental Analysis of Rent Seeking under Varying Competitive Conditions," Public Choice, Springer, vol. 115(1-2), pages 199-216, April.
  17. Yates, Andrew J. & Heckelman, Jac C., 2001. "Rent-setting in multiple winner rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 17(4), pages 835-852, November.
  18. Millner, Edward L & Pratt, Michael D, 1991. " Risk Aversion and Rent-Seeking: An Extension and Some Experimental Evidence," Public Choice, Springer, vol. 69(1), pages 81-92, February.
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Citations

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Cited by:
  1. Chowdhury, Subhasish & Sheremeta, Roman & Turocy, Theodore, 2014. "Overbidding and overspreading in rent-seeking experiments: Cost structure and prize allocation rules," MPRA Paper 55922, University Library of Munich, Germany.
  2. Erik O. Kimbrough & Roman M. Sheremeta & Timothy W. Shields, 2013. "When Parity Promotes Peace: Resolving Conflict Between Asymmetric Agents," Working Papers 13-33, Chapman University, Economic Science Institute.
  3. Shakun D. Mago & Roman M. Sheremeta & Andrew Yates, 2012. "Best-of-Three Contest Experiments: Strategic versus Psychological Momentum," Working Papers 12-30, Chapman University, Economic Science Institute.
  4. Cary Deck & Erik O. Kimbrough, 2014. "Single- and Double-Elimination All-Pay Tournaments," Working Papers 14-10, Chapman University, Economic Science Institute.
  5. Sheremeta, Roman, 2014. "Behavioral Dimensions of Contests," MPRA Paper 57751, University Library of Munich, Germany.
  6. Filippin, A. & Crosetto, P., 2014. "A reconsideration of gender differences in risk attitudes," Working Papers 2014-01, Grenoble Applied Economics Laboratory (GAEL).
  7. Lisa Anderson & Beth Freeborn, 2010. "Erratum to: Varying the intensity of competition in a multiple prize rent seeking experiment," Public Choice, Springer, vol. 143(1), pages 255-256, April.
  8. Daniel Houser & Thomas Stratmann, 2012. "Gordon Tullock and experimental economics," Public Choice, Springer, vol. 152(1), pages 211-222, July.
  9. Paolo Crosetto & Antonio Filippin & Janna Heider, 2013. "A Study of Outcome Reporting Bias Using Gender Differences in Risk Attitudes," CESifo Working Paper Series 4466, CESifo Group Munich.
  10. Erik O. Kimbrough & Roman M. Sheremeta & Timothy Shields, 2011. "Resolving Conflicts by a Random Device," Working Papers 11-09, Chapman University, Economic Science Institute.
  11. Sheremeta, Roman, 2014. "Behavior in Contests," MPRA Paper 57451, University Library of Munich, Germany.

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