Unfair Tax Effects on Bids in an All-Pay Contest with a Possible Tie
17 Pages Posted: 9 Oct 2009
Date Written: October 9, 2009
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: Suggested Citation