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Risk aversion in symmetric and asymmetric contests

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  • Richard Cornes

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  • Roger Hartley

    ()

Abstract

We analyze existence, uniqueness and properties of equilibria in incompletely discriminating Tullock contests with logistic contest success functions, when contestants are risk averse. We prove that a Nash equilibrium for such a contest exists, but give an example of a symmetric contest with both symmetric and asymmetric equilibria, showing that risk aversion may lead to multiple equilibria. Symmetric contests have unique symmetric equilibria but additional conditions are necessary for general uniqueness. We also study the effects on incumbents of additional competitors entering the contest under these conditions and examine the effects of risk aversion on rent dissipation in symmetric and asymmetric contests. Copyright Springer-Verlag 2012

Suggested Citation

  • Richard Cornes & Roger Hartley, 2012. "Risk aversion in symmetric and asymmetric contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 247-275, October.
  • Handle: RePEc:spr:joecth:v:51:y:2012:i:2:p:247-275
    DOI: 10.1007/s00199-009-0490-9
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Paan Jindapon & Christopher Whaley, 2015. "Risk lovers and the rent over-investment puzzle," Public Choice, Springer, vol. 164(1), pages 87-101, July.
    2. Paul Pecorino, 2016. "Individual welfare and the group size paradox," Public Choice, Springer, vol. 168(1), pages 137-152, July.
    3. Kai Konrad & Dan Kovenock, 2012. "Introduction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(2), pages 241-245, October.
    4. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    5. Richard Cornes & Roger Hartley & Yuji Tamura, 2010. "A New Approach to Solving Production-Appropriation Games with Many Heterogeneous Players," CESifo Working Paper Series 3060, CESifo Group Munich.
    6. repec:eee:jeborg:v:142:y:2017:i:c:p:120-139 is not listed on IDEAS
    7. Subhasish Chowdhury & Roman Sheremeta, 2015. "Strategically equivalent contests," Theory and Decision, Springer, vol. 78(4), pages 587-601, April.
    8. Nicolas Treich, 2010. "Risk-aversion and prudence in rent-seeking games," Public Choice, Springer, vol. 145(3), pages 339-349, December.
    9. March, Christoph & Sahm, Marco, 2017. "Contests as selection mechanisms: The impact of risk aversion," BERG Working Paper Series 127, Bamberg University, Bamberg Economic Research Group.
    10. Jean-Daniel Guigou & Bruno Lovat & Nicolas Treich, 2017. "Risky rents," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 151-164, October.
    11. Roman M. Sheremeta, 2014. "Behavioral Dimensions of Contests," Working Papers 14-14, Chapman University, Economic Science Institute.
    12. Kolmar, Martin, 2013. "Group Conflicts. Where do we stand?," Economics Working Paper Series 1331, University of St. Gallen, School of Economics and Political Science.
    13. Sheremeta, Roman, 2014. "Behavior in Contests," MPRA Paper 57451, University Library of Munich, Germany.
    14. Schroyen, Fred & Treich, Nicolas, 2016. "The power of money: Wealth effects in contests," Games and Economic Behavior, Elsevier, vol. 100(C), pages 46-68.
    15. Marco Sahm, 2017. "Risk Aversion and Prudence in Contests," CESifo Working Paper Series 6417, CESifo Group Munich.
    16. repec:luc:wpaper:13-9 is not listed on IDEAS
    17. De Paola, Maria & Gioia, Francesca & Scoppa, Vincenzo, 2016. "The Adverse Consequences of Tournaments: Evidence from a Field Experiment," IZA Discussion Papers 9854, Institute for the Study of Labor (IZA).
    18. Ben Chen & José A. Rodrigues-Neto, 2017. "Cost Shifting in Civil Litigation: A General Theory," ANU Working Papers in Economics and Econometrics 2017-651, Australian National University, College of Business and Economics, School of Economics.
    19. repec:eee:juecon:v:99:y:2017:i:c:p:31-47 is not listed on IDEAS
    20. Philip Brookins & Dmitry Ryvkin, 2014. "An experimental study of bidding in contests of incomplete information," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 245-261, June.
    21. repec:eee:eecrev:v:98:y:2017:i:c:p:264-281 is not listed on IDEAS
    22. Jean-Daniel Guigou & Bruno Lovat & Marc Boissaux, 2013. "Asymmetric contests with risky rents," LSF Research Working Paper Series 13-9, Luxembourg School of Finance, University of Luxembourg.
    23. repec:eee:jeborg:v:138:y:2017:i:c:p:69-84 is not listed on IDEAS
    24. repec:elg:eechap:15325_10 is not listed on IDEAS

    More about this item

    Keywords

    Contest theory; Aggregative games; Noncooperative games; Risk aversion; C72; D72;

    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

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