Resource Allocation Contests: Experimental Evidence

31 Pages Posted: 18 Sep 2013

See all articles by Robert Shupp

Robert Shupp

Michigan State University - Department of Agricultural, Food and Resource Economics

Roman M. Sheremeta

Case Western Reserve University

David Schmidt

Federal Trade Commission - Antitrust II

James M. Walker

Indiana University - Department of Economics and Workshop in Political Theory and Policy Analysis

Date Written: August 9, 2013

Abstract

Many resource allocation contests have the property that individuals undertake costly actions to appropriate a potentially divisible resource. We design an experiment to compare individuals’ decisions across three resource allocation contests which are isomorphic under risk-neutrality. The results indicate that in aggregate the single-prize contest generates lower expenditures than either the proportional-prize or the multi-prize contest. Interestingly, while the aggregate results indicate similar behavior in the proportional-prize and multi-prize contests, individual level analysis indicates that the behavior in the single-prize contest is more similar to the behavior in the multi-prize contest than in the proportional-prize contest. We also elicit preferences toward risk, ambiguity and losses, and find that while such preferences cannot explain individual behavior in the proportional-prize contest, preferences with regard to losses are predictive of behavior in both the single-prize and multiple-prize contests. Therefore, it appears that loss aversion is correlated with behavior in the single-prize and multi-prize contests where losses are likely to occur, but not in the proportional-prize contest where losses are unlikely.

Keywords: contest, rent-seeking, experiments, risk aversion, game theory

JEL Classification: C72, C92, D72

Suggested Citation

Shupp, Robert and Sheremeta, Roman M. and Schmidt, David and Walker, James M., Resource Allocation Contests: Experimental Evidence (August 9, 2013). Journal of Economic Psychology, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2327277

Robert Shupp

Michigan State University - Department of Agricultural, Food and Resource Economics ( email )

Agricultural Hall
East Lansing, MI 48824
United States
765-285-3724 (Phone)
765-285-8024 (Fax)

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

David Schmidt

Federal Trade Commission - Antitrust II ( email )

600 Pennsylvania Avenue, NW
Rm 4233
Washington, DC 20580
United States
202-326-2781 (Phone)
202-326-3443 (Fax)

James M. Walker

Indiana University - Department of Economics and Workshop in Political Theory and Policy Analysis ( email )

Wylie Hall 105
Bloomington, IN 47405
United States
812-855-2760 (Phone)
812-855-3736 (Fax)

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