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The Advantage of Dual Discrimination in Lottery Contest Games

Listed author(s):
  • MEALEM, Yosef
  • NITZAN, Shmuel
  • UI, Takashi
Registered author(s):

    In a simple class of contest games, the designer can combine two types of discrimination: a change of the contestants' prize valuations subject to a balanced-budget constraint (direct discrimination), as well as a bias of the impact of their efforts (structural discrimination). Applying dual discrimination, the designer reduces (increases) the higher (lower) prize value up to a mimimal (maximal) level, but suitably increases (reduces) the corresponding prize share. Our main result establishes that in some cases this dual discrimination is advantageous and can yield almost the maximal possible efforts - the highest valuation of the contested prize. The efforts in our setting can therefore be larger than those obtained under alternative contests with optimal structural discrimination. This is true in particular with respect to the optimally biased simple N-player lottery, Franke et al. (2013). In contrast to the main findings in Franke et al. (2014a, 2014b), in our setting, efforts under the simple lottery are not necessarily smaller than those under an optimally biased N-player all-pay auction. Finally, the exclusion principle noted in Baye et al. (1999) – the elimination of the strongest player - is not valid under dual discrimination.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/28103/1/070_hiasDP-E-34.pdf
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    Paper provided by Hitotsubashi Institute for Advanced Study, Hitotsubashi University in its series Discussion paper series with number HIAS-E-34.

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    Length: 19 p.
    Date of creation: Sep 2016
    Handle: RePEc:hit:hiasdp:hias-e-34
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    1. Epstein, Gil S. & Mealem, Yosef & Nitzan, Shmuel, 2011. "Political culture and discrimination in contests," Journal of Public Economics, Elsevier, vol. 95(1), pages 88-93.
    2. Fang, Hanming, 2002. "Lottery versus All-Pay Auction Models of Lobbying," Public Choice, Springer, vol. 112(3-4), pages 351-371, September.
    3. Franke, Jörg & Kanzow, Christian & Leininger, Wolfgang & Schwartz, Alexandra, 2014. "Lottery versus all-pay auction contests: A revenue dominance theorem," Games and Economic Behavior, Elsevier, vol. 83(C), pages 116-126.
    4. repec:zbw:rwirep:0524 is not listed on IDEAS
    5. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-294, March.
    6. Luis Corchón & Matthias Dahm, 2010. "Foundations for contest success functions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(1), pages 81-98, April.
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    8. Yosef Mealem & Shmuel Nitzan, 2014. "Equity and effectiveness of optimal taxation in contests under an all-pay auction," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(2), pages 437-464, February.
    9. Franke, Jörg & Leininger, Wolfgang & Wasser, Cédric, 2014. "Revenue Maximizing Head Starts in Contests," Ruhr Economic Papers 524, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
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    12. Hao Jia, 2008. "A stochastic derivation of the ratio form of contest success functions," Public Choice, Springer, vol. 135(3), pages 125-130, June.
    13. Clark, Derek J. & Riis, Christian, 2000. "Allocation efficiency in a competitive bribery game," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 109-124, May.
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    15. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
    16. Franke, Jörg, 2012. "Affirmative action in contest games," European Journal of Political Economy, Elsevier, vol. 28(1), pages 105-118.
    17. Yosef Mealem & Shmuel Nitzan, 2016. "Discrimination in contests: a survey," Review of Economic Design, Springer;Society for Economic Design, vol. 20(2), pages 145-172, June.
    18. Baye, M.R. & Kovenock, D., 1993. "The Solution to the Tullock Rent-Seeking Game When R > 2: Mixed Strategy Equilibria and Mean Dissipation Rates," Papers 9368, Tilburg - Center for Economic Research.
    19. Jörg Franke & Christian Kanzow & Wolfgang Leininger & Alexandra Schwartz, 2013. "Effort maximization in asymmetric contest games with heterogeneous contestants," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 589-630, March.
    20. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
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