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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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    1. Konrad, Kai A., 2004. "Bidding in hierarchies," European Economic Review, Elsevier, vol. 48(6), pages 1301-1308, December.
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    4. Dewatripont, Mathias, 1988. "Commitment through Renegotiation-Proof Contracts with Third Parties," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 377-89, July.
    5. Hongbin Cai & Walter Cont, 2000. "Agency Problems and Commitment in Delegated Bargaining," Econometric Society World Congress 2000 Contributed Papers 1270, Econometric Society.
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    7. William E. Stein & Amnon Rapoport, 2004. "Asymmetric Two-Stage Group Rent-Seeking: Comparison of Two Contest Structures," Public Choice, Springer, vol. 118(1_2), pages 151-167, 01.
    8. Lee, Sanghack & Hyeong Kang, J., 1998. "Collective contests with externalities," European Journal of Political Economy, Elsevier, vol. 14(4), pages 727-738, November.
    9. Schoonbeek, Lambert, 2002. "Delegation in a group-contest," Research Report 02F03, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    10. P.-J. Jost & M. Kräkel, 2005. "Preemptive behavior in sequential-move tournaments with heterogeneous agents," Economics of Governance, Springer, vol. 6(3), pages 245-252, November.
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    12. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    17. Morgan, John, 2003. " Sequential Contests," Public Choice, Springer, vol. 116(1-2), pages 1-18, July.
    18. Gil S. Epstein & Shmuel Nitzan, 2000. "Strategic Restraint in Contests," CESifo Working Paper Series 271, CESifo Group Munich.
    19. Lambert Schoonbeek, 2002. "A delegated agent in a winner-takes-all contest," Applied Economics Letters, Taylor & Francis Journals, vol. 9(1), pages 21-23.
    20. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November.
    21. Muller, Holger M & Warneryd, Karl, 2001. "Inside versus Outside Ownership: A Political Theory of the Firm," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 527-41, Autumn.
    22. Kyung Hwan Baik, 2004. "Two-Player Asymmetric Contests with Ratio-Form Contest Success Functions," Economic Inquiry, Western Economic Association International, vol. 42(4), pages 679-689, October.
    23. Hwan Baik, Kyung & Lee, Sanghack, 1997. "Collective rent seeking with endogenous group sizes," European Journal of Political Economy, Elsevier, vol. 13(1), pages 121-130, February.
    24. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
    25. Gurtler, Oliver, 2005. "Collective contests with externalities: corrigendum," European Journal of Political Economy, Elsevier, vol. 21(2), pages 533-536, June.
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