Why are stabilisations delayed: an experiment with an application to all pay auctions

Oliver Kirchkamp

No 04-06, Papers from Sonderforschungsbreich 504

Abstract: We study with the help of experiments a two-player second-price all-pay auction. Such an auction describes e.g. the situation of a country were stabilisations are achieved through tax increases that eliminate a budget deficit. If these tax increases have distributional implications then stabilisation may be delayed (Alesina and Drazen, 1991). We find (1) under-dissipation and not over-dissipation of rents which is in contrast to other all-pay auction experiments. (2) Underdissipation decreases with increasing cost of distortionary taxation and increases with bidding cost. (3) Bidding is closer to the equilibrium on the individual than on the aggregate level. (4) The speed of stabilisations is smaller than the risk neutral Bayesian equilibrium and reacts less sensitively to changes in the cost of distortionary taxation.

Keywords: War of attrition; all-pay auction; stabilisation; experiment (search for similar items in EconPapers)
JEL-codes: C72 C92 D44 E62 H30 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2738

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