Overbidding and overspreading in rent-seeking experiments: Cost structure and prize allocation rules

Subhasish Chowdhury, Roman Sheremeta and Theodore Turocy

Games and Economic Behavior, 2014, vol. 87, issue C, 224-238

Abstract: We study experimentally the effects of cost structure and prize allocation rules on the performance of rent-seeking contests. Most previous studies use a lottery prize rule and linear cost, and find both overbidding relative to the Nash equilibrium prediction and significant variation of efforts, which we term ‘overspreading.’ We investigate the effects of allocating the prize by a lottery versus sharing it proportionally, and of convex versus linear costs of effort, while holding fixed the Nash equilibrium prediction for effort. We find the share rule results in average effort closer to the Nash prediction, and lower variation of effort. Combining the share rule with a convex cost function further enhances these results. We can explain a significant amount of non-equilibrium behavior by features of the experimental design. These results contribute towards design guidelines for contests based on behavioral principles that take into account implementation features of a contest.

Keywords: Rent-seeking; Contest; Contest design; Experiments; Quantal response; Overbidding (search for similar items in EconPapers)
JEL-codes: C72 C91 D72 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (104)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825614000839
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Overbidding and overspreading in rent-seeking experiments: Cost structure and prize allocation rules (2014)
Working Paper: Overbidding and overspreading in rent-seeking experiments: Cost structure and prize allocation rules (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:87:y:2014:i:c:p:224-238

DOI: 10.1016/j.geb.2014.05.004

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().