IDEAS home Printed from https://ideas.repec.org/p/hhs/nhheco/2013_013.html
   My bibliography  Save this paper

The Power of Money: Wealth Effects in Contests

Author

Listed:

Abstract

Two wealth effects typically arise in any contest: i) wealth decreases the marginal cost of effort, but also ii) decreases the marginal benefit of winning the contest. In this paper, we introduce three types of strategic contest models depending on whether the first, second, or both wealth effects play a role: namely, a privilege contest, an ability contest, and a rent-seeking contest. Our theoretical analysis reveals that the effects of wealth and wealth inequality are strongly “contestdependent” and are complex in the sense that they depend on the decisiveness of the contest and on the higher-order derivatives of the utility functions of wealth. Our analysis thus does not support general claims that the rich should lobby more or that low economic growth and wealth inequality should lead to additional conflicts.

Suggested Citation

  • Schroyen, Fred & Treich, Nicolas, 2013. "The Power of Money: Wealth Effects in Contests," Discussion Paper Series in Economics 13/2013, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2013_013
    as

    Download full text from publisher

    File URL: http://www.nhh.no/Files/Filer/institutter/sam/Discussion%20papers/2013/13.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Gundlach, Erich & Paldam, Martin, 2009. "The transition of corruption: From poverty to honesty," Economics Letters, Elsevier, vol. 103(3), pages 146-148, June.
    3. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603.
    4. Toke S. Aidt, 2009. "Corruption, institutions, and economic development," Oxford Review of Economic Policy, Oxford University Press, vol. 25(2), pages 271-291, Summer.
    5. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-573, October.
    6. Kyung Hwan Baik & Subhasish M. Chowdhury & Abhijit Ramalingam, 2020. "The effects of conflict budget on the intensity of conflict: an experimental investigation," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 240-258, March.
    7. 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.
    8. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-651, June.
    9. Nicolas Treich, 2010. "Risk-aversion and prudence in rent-seeking games," Public Choice, Springer, vol. 145(3), pages 339-349, December.
    10. Eeckhoudt, Louis & Gollier, Christian & Schlesinger, Harris, 1996. "Changes in Background Risk and Risk-Taking Behavior," Econometrica, Econometric Society, vol. 64(3), pages 683-689, May.
    11. Nti, Kofi O, 1997. "Comparative Statics of Contests and Rent-Seeking Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 43-59, February.
    12. Fearon, James D. & Laitin, David D., 2003. "Ethnicity, Insurgency, and Civil War," American Political Science Review, Cambridge University Press, vol. 97(1), pages 75-90, February.
    13. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    14. Timothy Besley & Torsten Persson, 2011. "The Logic of Political Violence," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1411-1445.
    15. Takeshi Yamazaki, 2009. "The uniqueness of pure-strategy Nash equilibrium in rent-seeking games with risk-averse players," Public Choice, Springer, vol. 139(3), pages 335-342, June.
    16. Corchon, Luis C., 1994. "Comparative statics for aggregative games the strong concavity case," Mathematical Social Sciences, Elsevier, vol. 28(3), pages 151-165, December.
    17. Hirshleifer, Jack, 1995. "Theorizing about conflict," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 7, pages 165-189, Elsevier.
    18. Jia, Hao & Skaperdas, Stergios & Vaidya, Samarth, 2013. "Contest functions: Theoretical foundations and issues in estimation," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 211-222.
    19. Nti, Kofi O, 1999. "Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-430, March.
    20. Szidarovszky, Ferenc & Okuguchi, Koji, 1997. "On the Existence and Uniqueness of Pure Nash Equilibrium in Rent-Seeking Games," Games and Economic Behavior, Elsevier, vol. 18(1), pages 135-140, January.
    21. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
    22. Perez-Castrillo, J David & Verdier, Thierry, 1992. "A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-350, April.
    23. Marshall Burke & John Dykema & David Lobell & Edward Miguel & Shanker Satyanath, 2010. "Climate and Civil War: Is the Relationship Robust?," NBER Working Papers 16440, National Bureau of Economic Research, Inc.
    24. Fajnzylber, Pablo & Lederman, Daniel & Loayza, Norman, 2002. "What causes violent crime?," European Economic Review, Elsevier, vol. 46(7), pages 1323-1357, July.
    25. Durham, Yvonne & Hirshleifer, Jack & Smith, Vernon L., 2008. "The Paradox of Power," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 16, pages 127-137, Elsevier.
    26. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    27. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    28. Jean-Paul Azam, 2006. "The Paradox of Power Reconsidered: A Theory of Political Regimes in Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 15(1), pages 26-58, March.
    29. Theodore C. Bergstrom & Hal R. Varian, 1985. "When Are Nash Equilibria Independent of the Distribution of Agents' Characteristics?," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 715-718.
    30. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1994. "The Solution to the Tullock Rent-Seeking Game When R Is Greater Than 2: Mixed-Strategy Equilibria and Mean Dissipation Rates," Public Choice, Springer, vol. 81(3-4), pages 363-380, December.
    31. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 22, pages 649-709, Elsevier.
    32. Bartels, Larry, 2005. "Economic Inequality and Political Representation," Papers 08-11-2005, Princeton University, Research Program in Political Economy.
    33. Skaperdas, Stergios & Gan, Li, 1995. "Risk Aversion in Contests," Economic Journal, Royal Economic Society, vol. 105(431), pages 951-962, July.
    34. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-1123, September.
    35. Acemoglu, Daron & Jensen, Martin Kaae, 2013. "Aggregate comparative statics," Games and Economic Behavior, Elsevier, vol. 81(C), pages 27-49.
    36. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
    37. Chassang, Sylvain & Miquel, Gerard Padró i, 2009. "Economic Shocks and Civil War," Quarterly Journal of Political Science, now publishers, vol. 4(3), pages 211-228, October.
    38. Sung Ha Hwang, 2009. "Contest Success Functions: Theory and Evidence," UMASS Amherst Economics Working Papers 2009-04, University of Massachusetts Amherst, Department of Economics.
    39. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
    40. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-921, September.
    41. Che, Yeon-Koo & Gale, Ian, 1997. "Rent Dissipation When Rent Seekers Are Budget Constrained," Public Choice, Springer, vol. 92(1-2), pages 109-126, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Dickson, Alex & MacKenzie, Ian A. & Sekeris, Petros G., 2018. "Rent-seeking incentives in share contests," Journal of Public Economics, Elsevier, vol. 166(C), pages 53-62.
    3. Kyung Hwan Baik & Subhasish M. Chowdhury & Abhijit Ramalingam, 2020. "The effects of conflict budget on the intensity of conflict: an experimental investigation," Experimental Economics, Springer;Economic Science Association, vol. 23(1), pages 240-258, March.
    4. Kyung Hwan Baik & Subhasish M. Chowdhury & Abhijit Ramalingam, 2014. "Resources for Conflict: Constraint or Wealth?," University of East Anglia Applied and Financial Economics Working Paper Series 061, School of Economics, University of East Anglia, Norwich, UK..
    5. Liqun Liu & Jack Meyer & Andrew J. Rettenmaier & Thomas R. Saving, 2018. "Risk and risk aversion effects in contests with contingent payments," Journal of Risk and Uncertainty, Springer, vol. 56(3), pages 289-305, June.
    6. Mario Menegatti, 2021. "Risk aversion in two-period rent-seeking games," Public Choice, Springer, vol. 188(1), pages 269-287, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ewerhart, Christian, 2017. "Contests with small noise and the robustness of the all-pay auction," Games and Economic Behavior, Elsevier, vol. 105(C), pages 195-211.
    2. Jia, Hao & Skaperdas, Stergios & Vaidya, Samarth, 2013. "Contest functions: Theoretical foundations and issues in estimation," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 211-222.
    3. Subhasish M. Chowdhury & Patricia Esteve-González & Anwesha Mukherjee, 2020. "Heterogeneity, Leveling the Playing Field, and Affirmative Action in Contests," Economics Series Working Papers 915, University of Oxford, Department of Economics.
    4. Konrad, Kai A., 2007. "Strategy in contests: an introduction [Strategie in Turnieren – eine Einführung]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, WZB Berlin Social Science Center.
    5. Sakshi Gupta & Ram Singh, 2018. "On Existence and Properties of Pure-strategy Equilibria under Contests," Working Papers id:12840, eSocialSciences.
    6. Fausto, Cavalli & Mario, Gilli & Ahmad, Naimzada, 2017. "A New Approach to Contest Models," Working Papers 364, University of Milano-Bicocca, Department of Economics, revised 03 Mar 2017.
    7. 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.
    8. Hoffmann, Magnus & Rota-Graziosi, Grégoire, 2012. "Endogenous timing in general rent-seeking and conflict models," Games and Economic Behavior, Elsevier, vol. 75(1), pages 168-184.
    9. Hadi Yektaş & Magnus Hoffmann & Friedhelm Hentschel & Roland Hodler, 2019. "Wars of Conquest and Independence," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(4), pages 617-640.
    10. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    11. Marco Sahm, 2017. "Risk Aversion and Prudence in Contests," CESifo Working Paper Series 6417, CESifo.
    12. Alcalde, José & Dahm, Matthias, 2010. "Rent seeking and rent dissipation: A neutrality result," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 1-7, February.
    13. José Alcalde & Matthias Dahm, 2007. "All-Pay Auction Equilibria In Contests," Working Papers. Serie AD 2007-27, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    14. Zuleta, Hernando & Villaveces, Marta Juanita & Andonova, Veneta, 2013. "Conflict and negotiation in Colombia: Are pre-donations useful?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 105-117.
    15. Qiang Chen, 2015. "Climate Shocks, State Capacity and Peasant Uprisings in North China during 25–1911 ce," Economica, London School of Economics and Political Science, vol. 82(326), pages 295-318, April.
    16. Alice Guerra & Barbara Luppi & Francesco Parisi, 2019. "Productive and unproductive competition: a unified framework," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 785-804, October.
    17. Einy, E & Haimanko, O & Moreno, D & Sela, A & Shitovitz, B, 2013. "Tullock Contests with Asymmetric Information," Discussion Papers 2013-11, Graduate School of Economics, Hitotsubashi University.
    18. Pradeep Dubey & Siddhartha Sahi, 2016. "Optimal Prizes," Department of Economics Working Papers 16-03, Stony Brook University, Department of Economics.
    19. Gama, Adriana & Rietzke, David, 2019. "Monotone comparative statics in games with non-monotonic best-replies: Contests and Cournot oligopoly," Journal of Economic Theory, Elsevier, vol. 183(C), pages 823-841.
    20. Kyung Hwan Baik & Jong Hwa Lee, 2013. "Endogenous Timing In Contests With Delegation," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2044-2055, October.

    More about this item

    Keywords

    Conflict; contest; rent-seeking; wealth; risk aversion; lobbying; power; redistribution.;
    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
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:nhheco:2013_013. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/sonhhno.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Karen Reed-Larsen (email available below). General contact details of provider: https://edirc.repec.org/data/sonhhno.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.