Risk taking and investing in electoral competition

Matthias Kräkel, Petra Nieken and Judith Przemeck

European Journal of Political Economy, 2014, vol. 33, issue C, 98-120

Abstract: We analyze a two-player electoral contest game between a challenger and an incumbent. First, the challenger decides whether to choose a high-risk campaign (e.g., risky platforms, negative campaigning, an interactive Web technology) or a less risky one. In a second stage, both the challenger and the incumbent raise funds and invest in the electoral contest. The politicians differ in their fund-raising costs. According to theory, a high-cost challenger should choose high risk (gambling for resurrection). If the benefit of winning is sufficiently large, a low-cost challenger should take high risk either to discourage the incumbent or to prevent intense campaigning. Both effects are based on the fact that high risk campaigning reduces incentives to invest in the contest. In case of a rather small benefit of winning, a low-cost challenger should prefer low risk to avoid jeopardizing his competitive advantage. Our experimental findings show that gambling for resurrection plays a role. Taking low risk to preserve a competitive advantage is strongly supported by the data. However, reactions of low-cost challengers when facing high benefits of winning are heterogeneous.

Keywords: Electoral competition; Gambling for resurrection; Risk taking; Tournaments (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 (7)

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Related works:
Working Paper: Risk Taking in Winner-Take-All Competition (2008)
Working Paper: Risk Taking in Winner-Take-All Competition (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:33:y:2014:i:c:p:98-120

DOI: 10.1016/j.ejpoleco.2013.12.003

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