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Resource Allocation Contests: Experimental Evidence

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  • Shupp, Robert
  • Sheremeta, Roman

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 risk-neutrality. 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 University Library of Munich, Germany in its series MPRA Paper with number 49889.

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Date of creation: 09 Aug 2013
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Handle: RePEc:pra:mprapa:49889

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

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