Behavior in Contests

23 Pages Posted: 21 Jul 2014

Date Written: July 1, 2014

Abstract

Standard theoretical prediction is that rational economic agents participating in rent-seeking contests should engage in socially inefficient behavior by exerting costly efforts. Experimental studies find that the actual efforts of participants are significantly higher than predicted and that over-dissipation of rents (or overbidding or over-expenditure of resources) can occur. Although the standard theory cannot explain over-dissipation, this phenomenon can be explained by incorporating behavioral dimensions into the rent-seeking contest, such as (1) the utility of winning, (2) relative payoff maximization, (3) bounded rationality, and (4) judgmental biases. These explanations are not exhaustive, but they provide a coherent picture of important behavioral dimensions that should be considered when studying rent-seeking behavior in theory and in practice.

Keywords: rent-seeking, contests, experiments, overbidding, over-dissipation

JEL Classification: C72, C91, C92, D72, D74

Suggested Citation

Sheremeta, Roman M., Behavior in Contests (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=2468838 or http://dx.doi.org/10.2139/ssrn.2468838

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

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