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"Favors" for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection

Author

Listed:
  • Didier Laussel

    (Universite de la Mediterranee)

  • Michel Le Breton

    (Universite de Toulouse 1 Gremaq-Idei)

Abstract

We study the distribution of a fixed amount of "favors" by an incumbent politician between two pressure groups, each of them offering to the agent a campaign contribution contingent on the quantity of "favors" received. Assuming that the total amount supplied is a private information of the politician the equilibrium contribution schedules are fully characterized. It is shown that the principals net equilibrium payoffs are larger the more quickly their marginal valuations of the favors decrease with the amount received. The equilibrium allocation of the stock of "favors" is efficient if the interest group utility functions are identical.

Suggested Citation

  • Didier Laussel & Michel Le Breton, 2005. ""Favors" for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection," Annals of Economics and Finance, Society for AEF, vol. 6(1), pages 53-73, May.
    • Handle: RePEc:cuf:journl:y:2005:v:6:i:1:p:53-73
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    References listed on IDEAS

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    More about this item

    Keywords

    Menu auction; Adverse selection;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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