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Endowment Effects in Contests

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  • Price, Curtis
  • Sheremeta, Roman

Abstract

We experimentally study overbidding in contests and find that overbidding is significantly higher when subjects are given a large per-experiment endowment rather than when the endowment is given per-period. Risk-aversion and non-monetary utility of winning can partially explain our findings.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52103.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:52103

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Keywords: rent-seeking; contest; experiments; overbidding; endowment;

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References

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  1. Roman M. Sheremeta, 2009. "Contest Design: An Experimental Investigation," Working Papers, Chapman University, Economic Science Institute 09-05, Chapman University, Economic Science Institute.
  2. Potters, J.J.M. & Vries, C.G. de & Winden, F.A.A.M. van, 1998. "An experimental examination of rational rentseeking," Open Access publications from Tilburg University urn:nbn:nl:ui:12-79319, Tilburg University.
  3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  4. Hillman, Arye L & Katz, Eliakim, 1984. "Risk-Averse Rent Seekers and the Social Cost of Monopoly Power," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(373), pages 104-10, March.
  5. Anderson, Lisa R & Stafford, Sarah L, 2003. " An Experimental Analysis of Rent Seeking under Varying Competitive Conditions," Public Choice, Springer, Springer, vol. 115(1-2), pages 199-216, April.
  6. Gneezy, Uri & Smorodinsky, Rann, 2006. "All-pay auctions--an experimental study," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 61(2), pages 255-275, October.
  7. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, American Economic Association, vol. 92(5), pages 1644-1655, December.
  8. Merlo, Antonio & Schotter, Andrew, 1999. "A Surprise-Quiz View of Learning in Economic Experiments," Games and Economic Behavior, Elsevier, Elsevier, vol. 28(1), pages 25-54, July.
  9. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 323-29, May.
  10. Roman Sheremeta & Jingjing Zhang, 2010. "Can groups solve the problem of over-bidding in contests?," Social Choice and Welfare, Springer, Springer, vol. 35(2), pages 175-197, July.
  11. Yasar Barut & Dan Kovenock & Charles Noussair, 1999. "A Comparison of Multiple-Unit All-Pay and Winner-Pay Auctions Under Incomplete Information," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 99-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  12. Sheremeta, Roman, 2009. "Experimental Comparison of Multi-Stage and One-Stage Contests," MPRA Paper 49884, University Library of Munich, Germany.
  13. Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, Springer, vol. 95(1), pages 89-115, April.
  14. Noussair, Charles & Silver, Jonathon, 2006. "Behavior in all-pay auctions with incomplete information," Games and Economic Behavior, Elsevier, Elsevier, vol. 55(1), pages 189-206, April.
  15. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, INFORMS, vol. 36(6), pages 643-660, June.
  16. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
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