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Risk attitudes and heterogeneity in simultaneous and sequential contests

Paan Jindapon and Zhe Yang

Journal of Economic Behavior & Organization, 2017, vol. 138, issue C, 69-84

Abstract: We prove existence and uniqueness of equilibrium in rent-seeking contests in which players are heterogeneous in both risk preferences and production technology. Given identical linear production technology, if the number of risk-loving players is large enough, the aggregate investment in equilibrium will exceed the rent and all risk-neutral and risk-averse players will exit the contest. In simultaneous and sequential contests with two players, we can identify the favorite and underdog based on both players’ preference parameters. Our theoretical results suggest that subjects in some recent contest experiments behaved as if they were risk-loving.

Keywords: Risk attitude; Simultaneous contest; Sequential contest; Rent dissipation (search for similar items in EconPapers)
JEL-codes: C72 D72 D81 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jeborg:v:138:y:2017:i:c:p:69-84