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Contractual Incentive Provision and Commitment in Rent-Seeking Contests

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  • Gürtler, Oliver
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    Abstract

    In this paper, we consider a symmetric rent-seeking contest, where employees lobby for a governmental contract on behalf of firms. The only verifiable information is which firm is assigned the contract. We derive the optimal wage contracts of the employees and analyze, whether commitment by determining the wage contract prior to the competitor is profitable. This is indeed the case, i.e. firms prefer to move first in the wage-setting subgame. This complements previous work on rent-seeking contests emphasizing that commitment via rent-seeking expenditures is unprofitable in symmetric contests.

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    File URL: http://epub.ub.uni-muenchen.de/13451/1/100.pdf
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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 100.

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    Date of creation: Mar 2006
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    Handle: RePEc:trf:wpaper:100

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    Keywords: Contest; First-Mover Advantage; Commitment; Wage Contract;

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    7. Davis, Douglas D & Reilly, Robert J, 1999. " Rent-Seeking with Non-identical Sharing Rules: An Equilibrium Rescued," Public Choice, Springer, Springer, vol. 100(1-2), pages 31-38, July.
    8. William E. Stein & Amnon Rapoport, 2004. "Asymmetric Two-Stage Group Rent-Seeking: Comparison of Two Contest Structures," Public Choice, Springer, Springer, vol. 118(1_2), pages 151-167, 01.
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    19. Lambert Schoonbeek, 2002. "A delegated agent in a winner-takes-all contest," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(1), pages 21-23.
    20. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 927-40, December.
    21. Kyung Hwan Baik, 2004. "Two-Player Asymmetric Contests with Ratio-Form Contest Success Functions," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 42(4), pages 679-689, October.
    22. Peter-J. Jost & Matthias Kräkel, 2004. "Preemptive Behavior in Sequential-Move Tournaments with Heterogeneous Agents," Bonn Econ Discussion Papers, University of Bonn, Germany bgse21_2004, University of Bonn, Germany.
    23. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(409), pages 1522-34, November.
    24. Epstein, Gil S & Nitzan, Shmuel, 2002. " Stakes and Welfare in Rent-Seeking Contests," Public Choice, Springer, Springer, vol. 112(1-2), pages 137-42, July.
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