Effects of risk aversion on all-pay auction with reimbursement

Yong Liu and Shulin Liu

Economics Letters, 2019, vol. 185, issue C

Abstract: This paper investigates all-pay auctions with winner’s reimbursement and risk-averse contestants. Assuming the contestants share a general concave utility function, we obtain analytical solutions for the contestants’ symmetrical equilibrium effort and the contest organizer’s expected revenue. We show that both the equilibrium effort and expected revenue are lower when the contestants are risk averse than when they are risk neutral, and decrease in the degree of risk aversion. These results imply that with winner’s reimbursement, the contestant organizer prefers risk-neutral contestants to risk-reverse contestants and contrast with those obtained in the standard first-price sealed-bid auctions.

Keywords: All-pay auctions; Reimbursement; Risk aversion (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:185:y:2019:i:c:s0165176519303775

DOI: 10.1016/j.econlet.2019.108751

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