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Effort and Performance in Public-Policy Contests

  • Gil S. Epstein
  • Shmuel Nitzan

Government intervention often gives rise to contests in which the possible ‘prizes’ are determined by the existing status-quo and some new public- policy proposal . In this paper we study the general class of such two-player public-policy contests and examine the effect of a change in the proposed policy, a change that may affect the payoffs of the two contestants, on their effort and performance. We extend the existing comparative statics studies that focus on the effect of changes either in the value of the prize in symmetric contests or in one of the contestants’ valuation of the prize in asymmetric contests. Our results hinge on the relationship between the strategic own-stake (“income”) effect and the strategic rival’s-stake (“substitution”) effect. This relationship is determined by three types of ability and stakes asymmetry between the contestants. In particular, we specify the asymmetry condition under which a more restrained government intervention that reduces the contestants’ prizes has the perverse effect of increasing their aggregate lobbying efforts.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 634.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_634
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  1. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  2. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics.
  3. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-39, September.
  4. Ellingsen, T., 1990. "Strategic Buyers and the Social Cost of Monopoly," Papers 05-90, Norwegian School of Economics and Business Administration-.
  5. Gil S . Epstein & Shmuel Nitzan, 2002. "Endogenous Public Policy, Politicization and Welfare," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 661-677, October.
  6. Fabella, Raul V., 1995. "The social cost of rent seeking under countervailing opposition to distortionary transfers," Journal of Public Economics, Elsevier, vol. 57(2), pages 235-247, June.
  7. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  8. Hurley, Terrance M. & Shogren, Jason F., 1998. "Effort levels in a Cournot Nash contest with asymmetric information," Journal of Public Economics, Elsevier, vol. 69(2), pages 195-210, June.
  9. Epstein, Gil S & Nitzan, Shmuel, 2002. " Stakes and Welfare in Rent-Seeking Contests," Public Choice, Springer, vol. 112(1-2), pages 137-42, July.
  10. Hurley, Terrance M, 1998. " Rent Dissipation and Efficiency in a Contest with Asymmetric Valuations," Public Choice, Springer, vol. 94(3-4), pages 289-98, March.
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