Lottery versus share contests under risk aversion

Daniel Cardona, Jenny De Freitas and Antoni Rubí-Barceló ()

No 93, DEA Working Papers from Universitat de les Illes Balears, Departament d'Economía Aplicada

Abstract: Lottery and share contests are equivalent for risk neutral contestants. We compare these two contests designs to show that this equivalence does no longer hold for risk averse contestants, in a policy contest setting. As expected, they prefer the share contest as it eliminates the uncertainty of the lottery. Under institutional settings in which contestants can pre-commit to policies different from their ideal one, the previous result is switched: Risk-averse contestants prefer lottery contests because, only under this design, they strategically moderate their claims, calming down the conflict and reducing the uncertainty of the lottery. Moreover, we show that contestants exert more effort in share contests. These results provide arguments justifying each of these two types of contests depending on the institutional framework and the comparative criteria.

Keywords: lobbying; lottery contest; share contest; risk aversion; commitment; strategic restraint. (search for similar items in EconPapers)
JEL-codes: C72 D72 D81 H40 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ubi:deawps:93

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