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Resource Allocation Contests: Experimental Evidence

CAEPR Working Paper No. 2006-004

FTC Bureau of Economics Working Paper No. 261

35 Pages Posted: 7 Jan 2004  

David Schmidt

Federal Trade Commission - Antitrust II

Robert Shupp

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

James M. Walker

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

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Date Written: August 29, 2006

Abstract

Across many forms of rent seeking contests, the impact of risk aversion on equilibrium play is indeterminate. We design an experiment to compare individuals' decisions across three contests which are isomorphic under risk-neutrality, but are typically not isomorphic under other risk preferences. The pattern of individual play across our contests is not consistent with a Bayes-Nash equilibrium for any distribution of risk preferences. We show that replacing the Bayes-Nash equilibrium concept with the quantal response equilibrium, along with heterogeneous risk preferences can produce equilibrium patterns of play that are very similar to the patterns we observe.

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

JEL Classification: C72, C92, D72

Suggested Citation

Schmidt, David and Shupp, Robert and Walker, James M., Resource Allocation Contests: Experimental Evidence (August 29, 2006). CAEPR Working Paper No. 2006-004; FTC Bureau of Economics Working Paper No. 261. Available at SSRN: https://ssrn.com/abstract=428022 or http://dx.doi.org/10.2139/ssrn.428022

David Schmidt (Contact Author)

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)

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)

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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