The Power of Money: Wealth Effects in Contests

50 Pages Posted: 21 Aug 2013

See all articles by Fred Schroyen

Fred Schroyen

Norwegian School of Economics (NHH) - Department of Economics

Nicolas Treich

French National Institute for Agricultural Research (INRA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 9, 2013

Abstract

Two wealth effects typically arise in any contest: i) wealth decreases the marginal cost of effort, but also ii) decreases the marginal benefit of winning the contest. In this paper, we introduce three types of strategic contest models depending on whether the first, second, or both wealth effects play a role: namely, a privilege contest, an ability contest, and a rent-seeking contest. Our theoretical analysis reveals that the effects of wealth and wealth inequality are strongly “contestdependent” and are complex in the sense that they depend on the decisiveness of the contest and on the higher-order derivatives of theutility functions of wealth. Our analysis thus does not support general claims that the rich should lobby more or that low economic growth and wealth inequality should lead to additional conflicts.

Keywords: Conflict, contest, rent-seeking, wealth, risk aversion.

Suggested Citation

Schroyen, Fred and Treich, Nicolas, The Power of Money: Wealth Effects in Contests (July 9, 2013). NHH Dept. of Economics Discussion Paper No. 13/2013. Available at SSRN: https://ssrn.com/abstract=2313086 or http://dx.doi.org/10.2139/ssrn.2313086

Fred Schroyen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Nicolas Treich

French National Institute for Agricultural Research (INRA) ( email )

147, rue de l'Universite
Paris Cedex 07, 78-Yvelines 75338
France
+33 0 1 42 75 90 00 (Phone)
+33 0 1 47 05 99 66 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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