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Lottery versus share contests under risk aversion

Author

Listed:
  • Daniel Cardona

    (Universitat de les Illes Balears)

  • Jenny De Freitas

    (Universitat de les Illes Balears)

  • Antoni Rubí-Barceló

    (Universitat de les Illes Balears)

Abstract

Lottery and share contests are equivalent for risk neutral contestants. We compare these two contests designs to show that this equivalence does no longer hold for risk averse contestants, in a policy contest setting. As expected, they prefer the share contest as it eliminates the uncertainty of the lottery. Under institutional settings in which contestants can pre-commit to policies different from their ideal one, the previous result is switched: Risk-averse contestants prefer lottery contests because, only under this design, they strategically moderate their claims, calming down the conflict and reducing the uncertainty of the lottery. Moreover, we show that contestants exert more effort in share contests. These results provide arguments justifying each of these two types of contests depending on the institutional framework and the comparative criteria.

Suggested Citation

  • Daniel Cardona & Jenny De Freitas & Antoni Rubí-Barceló, 2020. "Lottery versus share contests under risk aversion," DEA Working Papers 93, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    • Handle: RePEc:ubi:deawps:93
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    More about this item

    Keywords

    lobbying; lottery contest; share contest; risk aversion; commitment; strategic restraint.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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