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

Subhasish Chowdhury, Roman Sheremeta and Theodore Turocy

Working Papers from Chapman University, Economic Science Institute

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 ?nd both overbidding relative to the Nash equilibrium prediction and signi?cant 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 ?xed the Nash equilibrium prediction for effort. We ?nd 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 signi?cant 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)
Pages: 32 pages
Date: 2014
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (107)

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http://www.chapman.edu/research-and-institutions/e ... emeta_Turocy_GEB.pdf

Related works:
Journal Article: 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)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:14-08

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