Unfair Tax Effects on Bids in an All-Pay Contest with a Possible Tie

17 Pages Posted: 9 Oct 2009

See all articles by Chen Cohen

Chen Cohen

Ben-Gurion University of the Negev - Department of Economics

Tal Shavit

College of Management (Israel)

Mosi Rosenboim

Ben-Gurion University of the Negev

Date Written: October 9, 2009

Abstract

This paper examines experimentally the effect of a different payment mechanism in the case of a tie on an agent's willingness to pay (WTP) in a winner-take-all contest. We examine how a small chance to pay tax in case of a tie affects the contest's bids. Our hypothesis is that the tax payment is perceived as unfair and as a result has a non-proportional effect on the bidders. The experimental results indicate that although the probability of a tie is quite low, the participants overweight its importance in determining their bids. As a result, they sharply decrease their bids in the case of a tax which is perceived unfair.

Keywords: all pay contest, tie, experiment, fairness effect, contesters

JEL Classification: C91, D44

Suggested Citation

Cohen, Chen and Shavit, Tal and Rosenboim, Mosi, Unfair Tax Effects on Bids in an All-Pay Contest with a Possible Tie (October 9, 2009). Available at SSRN: https://ssrn.com/abstract=1485941 or http://dx.doi.org/10.2139/ssrn.1485941

Chen Cohen

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
+972 8 647 2274 (Phone)

Tal Shavit (Contact Author)

College of Management (Israel) ( email )

7 Rabin Blvd.
Rishon Lezion
Rishon Lezion, 75190
Israel

Mosi Rosenboim

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheva, 84105
Israel

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