The Power of Money: Wealth Effects in Contests

Fred Schroyen () and Nicolas Treich
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Fred Schroyen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/en/research-faculty/department-of-economics/sam/cv/schroyen--fred.aspx

No 13/2013, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

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.

Keywords: Conflict; contest; rent-seeking; wealth; risk aversion; lobbying; power; redistribution. (search for similar items in EconPapers)
JEL-codes: C72 D72 D74 D81 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2013-07-09
New Economics Papers: this item is included in nep-gth, nep-mic, nep-pbe, nep-pol and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The power of money: Wealth effects in contests (2016)
Working Paper: The Power of Money: Wealth Effects in Contest (2016)
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