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Risk aversion in symmetric and asymmetric contests

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  • Richard Cornes
  • Roger Hartley

Abstract

We analyze existence, uniqueness and properties of equilibria in incompletely discriminating Tullock contests with logistic contest success functions, when contestants are risk averse. We prove that a Nash equilibrium for such a contest exists, but give an example of a symmetric contest with both symmetric and asymmetric equilibria, showing that risk aversion may lead to multiple equilibria. Symmetric contests have unique symmetric equilibria but additional conditions are necessary for general uniqueness. We also study the effects on incumbents of additional competitors entering the contest under these conditions and examine the effects of risk aversion on rent dissipation in symmetric and asymmetric contests. Copyright Springer-Verlag 2012

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0806.

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Date of creation: 2008
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Handle: RePEc:man:sespap:0806

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Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/
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  1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
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  4. Richard Cornes & Roger Hartley, 2005. "Asymmetric contests with general technologies," Economic Theory, Springer, vol. 26(4), pages 923-946, November.
  5. Szidarovszky, Ferenc & Okuguchi, Koji, 1997. "On the Existence and Uniqueness of Pure Nash Equilibrium in Rent-Seeking Games," Games and Economic Behavior, Elsevier, vol. 18(1), pages 135-140, January.
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  7. Gradstein, Mark & Nitzan, Shmuel & Slutsky, Steven, 1992. "The Effect of Uncertainty on Interactive Behaviour," Economic Journal, Royal Economic Society, vol. 102(412), pages 554-61, May.
  8. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
  9. 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.
  10. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 85-98, January.
  11. Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer, vol. 26(4), pages 989-994, November.
  12. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  13. Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
  14. 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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  17. Cornes, Richard & Hartley, Roger, 2003. " Risk Aversion, Heterogeneity and Contests," Public Choice, Springer, vol. 117(1-2), pages 1-25, October.
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Cited by:
  1. TREICH Nicolas, 2009. "Risk-aversion and Prudence in Rent-seeking Games," LERNA Working Papers 09.05.281, LERNA, University of Toulouse.
  2. Schroyen, Fred & Treich, Nicolas, 2013. "The Power of Money: Wealth Effects in Contests," Discussion Paper Series in Economics 13/2013, Department of Economics, Norwegian School of Economics.
  3. Kai Konrad & Dan Kovenock, 2012. "Introduction," Economic Theory, Springer, vol. 51(2), pages 241-245, October.
  4. Chowdhury, Subhasish & Sheremeta, Roman, 2014. "Strategically Equivalent Contests," MPRA Paper 55450, University Library of Munich, Germany.
  5. Jean-Daniel Guigou & Bruno Lovat & Marc Boissaux, 2013. "Asymmetric contests with risky rents," LSF Research Working Paper Series 13-9, Luxembourg School of Finance, University of Luxembourg.
  6. Kolmar, Martin, 2013. "Group Conflicts. Where do we stand?," Economics Working Paper Series 1331, University of St. Gallen, School of Economics and Political Science.
  7. Jean-Daniel Guigou & Bruno Lovat & Marc Boissaux, 2013. "Asymmetric contests with risky rents," CREA Discussion Paper Series 13-9, Center for Research in Economic Analysis, University of Luxembourg.

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