The Lifeboat Problem
Kai A. Konrad
Max Planck Institute for Tax Law and Public Finance; Social Science Research Center Berlin (WZB); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
Chapman University - Economic Science Institute; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2011-13
We study an all-pay contest with multiple identical prizes ("lifeboat seats"). Prizes are partitioned into subsets of prizes ("lifeboats"). Players play a twostage game. First, each player chooses an element of the partition ("a lifeboat"). Then each player competes for a prize in the subset chosen ("a seat"). We characterize and compare the subgame perfect equilibria in which all players employ pure strategies or all players play identical mixed strategies in the first stage. We find that the partitioning of prizes allows for coordination failure among players when they play nondegenerate mixed strategies and this can shelter rents and reduce rent dissipation compared to some of the less efficient pure strategy equilibria.
Number of Pages in PDF File: 22
Keywords: all-pay contest, multiple prizes, rent dissipation, lifeboat
JEL Classification: D72, D74working papers series
Date posted: October 17, 2011 ; Last revised: October 31, 2011
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