When Less is More: Rationing and Rent Dissipation in Stochastic Contests
Marco Faravelli and
Luca Stanca ()
No 412, Discussion Papers Series from University of Queensland, School of Economics
This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest with proportional probabilities, where all bidders value the prize equally. We show that by fixing the number of tickets, thus setting a limit to total expenditures, it is possible to maximize the auctioneerâ€™s revenue and obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is significantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery.
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Journal Article: When less is more: Rationing and rent dissipation in stochastic contests (2012)
Working Paper: When Less is More: Rationing and Rent Dissipation in Stochastic Contests (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:412
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