The strategic advantage of interdependent preferences in rent-seeking contests

We study rent-seeking contests, where the set of players contains two groups of players – one with independent preferences and the other with (negatively) interdependent preferences. It turns out that the latter experience a strategic advantage in general two-player contests and in n-player-contests with non-increasing marginal efficiency. For general n-player contests with increasing marginal efficiency, the strategic advantage prevails provIDed convexity of contest technologies is sufficiently weak. For strongly convex contest technologies, other types of equilibria exist, including one where indivIDualists receive strictly higher pay-off.     

Voter preferences,simple electoral games,and equilibria in two-candidate contests

The fundamental assumption of spatial models of party competition is that voters possess cardinal utility functions defined on all combinations of issue positions which candidates may adopt. Furthermore, spatial theorists usually assume that utility functions have a shape common to all voters and that voters' most preferred positions are distributed in some regular manner. Employing these and attendant assumptions, the spatial theorist seeks to ascertain what deductions can be made about candidate strategies, i.e., the positions which vote or plurality-maximizing candidates should adopt in an election. It has been found that, in many situations, convergence to an opponent's positions and/or adoption of the median/mean of the most preferred positions of all voters is an important candidate strategy. In this context, two main problems have arisen: (1) difficulties of empirical or statistical analysis; (2) the abovementioned candidate strategy is generally not applicable to elections in so-called ‘plural’ societies. One path out of this latter problem has been formulated by Rabushka and Shepsle (1972). This article explores another potential solution by addressing the following question: If voters arenot characterized by cardinal utility functions, but some other type, what are the consequences for candidate strategies? The alternate assumption employed is that voters are characterized bylexicographic utility functions. The consequences for candidate strategies of this assumption are then determined for two plurality-maximizing candidates in some one- and two-dimensional, three-, five-, and seven-voter electoral games.     

Foreclosure in contests

We consider a contest where one firm has a cost advantage over rivals. Instead of taking the set of rivals as given, the favorite can transfer the source of its advantage wholly or partially to a subset of rival firms. Foreclosure of those firms that do not receive the cost reduction may result. We present conditions under which this transfer will occur and consider the welfare properties of exclusion. The expected payoff of the dominant firm is independent of the size of the cost reduction transferred to rivals. Applications include lobbying, patent races and access to essential infrastructure.     

Winner-pay contests

We analyze winner-pay contests in which players select bids, the winner is determined probabilistically through a contest success function, and only the winner must pay her bid. We show that a pure-strategy Nash equilibrium exists and is unique under weak assumptions on the contest success function. We determine the Nash equilibrium for several examples. We also consider how equilibrium bids are influenced by private information about the value of winning the contest.     

Outsourcing in contests

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, if the contest winner is expected to obtain a sufficiently large share of ex post outsourcing rents. Under reasonable assumptions, outsourcing tends also to increase the number of active contestants, strengthening the case for outsourcing to increase total contest effort. If such effort is socially wasteful, outsourcing creates a welfare trade-off between ex ante and ex post efficiency.     

Biased contests

We examine the effects of providing more accurate information to a political decision-maker lobbied by competing interests. We investigate how this bias in the direction of the correct decision affects efficiency, measured (inversely) by both the probability of taking an incorrect decision, and the amount of social waste associated to lobbying activities. We present a benchmark model in which increasing the bias always improves efficiency. However, this result is fragile as slight changes in the contest success function lead to slightly different models in which under either criterion there is no guarantee that more accurate information improves the decision.     

Efforts in two-sided contests

The degree of rent dissipation is studied in extended two-sided contests that involve two types of efforts. While usual contestants expend resources in trying to win the contested prize, potential recipients of the rent-seeking efforts also participate in the contest. This is due to uncertainty regarding the source of power in the contest that induces the bureaucrats to expend resources to increase their share in the rent-seeking efforts by trying to appear as the party controlling the allocation of the prize. We show that the existing theoretical and empirical studies are incomplete and may underestimate the extent of rent dissipation.     

Sequential contests revisited

In a past issue of this journal, Morgan (Public Choice 116:1–18, 2003) finds that aggregate effort is greater in sequential than in simultaneous lottery contests. We show that Morgan’s result is incorrect owing to a slip in a proof, and that aggregate effort turns out to be greater in sequential contests only if the contestants are sufficiently homogeneous. Additionally, we discuss the robustness of the corrected result to different specifications of the contest success function, and we partially restore Morgan’s case for sequential contests by showing that these contests are more desirable when maximizing only the effort of the winner, rather than maximizing the aggregate effort.     

Learning by doing in contests

We introduce learning by doing in a dynamic contest. Contestants compete in an early round and can use the experience gained to reduce effort cost in a subsequent contest. A contest designer can decide how much of the prize mass to distribute in the early contest and how much to leave for the later one in order to maximize total efforts. We show how this division affects effort at each stage, and present conditions that characterize the optimal split. There is a trade off here, since a large early prize increases first period efforts leading to a substantial reduction in second round effort cost; on the other hand, there is less of the prize mass to fight over in the second round, reducing effort at that stage. The results are indicative of the fact that the designer often prefers to leave most of the prize mass for the second contest to reap the gains from the learning by doing effect.     

Influencing rent-seeking contests

This paper shows that a policy that uniformly increases contestants’ effort costs can lead to an increase in total effort. In asymmetric settings, this “levels the playing field” and therefore encourages weaker players (who otherwise would have stayed out) to enter. Paradoxically, a contest designer whose only objective is to maximize total effort may thus wish to make rent-seeking “more difficult.” These results suggest that the often-lamented bureaucratic red tape might in fact be a rational response to the problem of attracting lobbyists to participate in a contest.     

Competitive-share group formation in rent-seeking contests

We examine the possibility of forming a competitive-share group in rent-seeking contests. The competitive-share group has the following characteristics: (a) the group is treated as a single player competing with the nonmembers to win the rent, (b) the members choose their outlays noncooperatively, and (c) the members compete to take larger shares of the rent. We show that the competitive-share group is always formed voluntarily. One important consequence of such group formation is that rent dissipation is less relative to individual rent seeking — in other words, the social cost associated with rent seeking is less.     

Performance and prize decomposition in contests

This paper focuses on the effect of additive contest decomposition on performance: winning probabilities and efforts of the contestants. Our main result provides a sufficient condition for invariance of contest performance to the decomposition of a contest, when the sum of the possibly differently valued prizes in the segmented contests is equal to the value of the prize in the original grand contest and the relative prizes in the sub-contests are equal for every contestant. It is shown that this condition is satisfied by the commonly used exponential logistic contest success functions. With these functions the contest designer does not have an incentive to split the prize and create additive, segmented sub-contests. We then prove that when the additive contest decomposition is asymmetric, contest decomposition may adversely affect the designer; that it, reduce the total efforts of the contestants.     

On being asset-constrained in litigation contests

This paper establishes that being asset-constrained may be advantageous for defendants in litigation contests. An active asset constraint of defendants (i) may increase (decrease) defendant (plaintiff) contest effort, (ii) may lower the sum of plaintiff and defendant contest effort, (iii) lowers expected defendant payment, and (iv) makes a symmetric contest asymmetric.     

Information alliances in contests with budget limits

We study the role of information exchange that may occur in alliances in a contest without noise. Contestants learn their own limits of what they can spend in a contest. They may also form alliances and learn the limits of all players who are within the same alliance. Then they decide independently about their own contest efforts. Alliance formation for the purpose of information exchange is beneficial for members of the same alliance and neutral for all other players. Also, a merger between alliances is beneficial for their members. Further, we identify and discuss the set of stable alliance combinations.     

Rent-seeking contests with incomplete information

We consider rent-seeking contests with two players who each have private information about their own cost of effort. We consider both discrete and continuous distributions of costs and give results for each case, focusing on existence of equilibrium.     

Goods or resource contests?

In this paper we analyze the optimal mix between appropriative and defensive activities for goods (goods contest) and appropriative and defensive activities for resources (resource contest). We show that goods contests are qualitatively different from resource contests. It turns out that for plausible cases the resource contest is dominated by the goods contest in the sense that investments are only positive in the latter.     

Asymmetric contests with liquidity constraints

We consider two bidders with asymmetric valuations competing to win an exogenous prize. Capital markets are imperfect, such that the contestants possibly face a liquidity constraint. We show that aggregate investments are lower if at least one bidder has a liquidity constraint, even if the low-valuation bidder possibly increases his/her investments. Furthermore, the effect of the high-valuation bidder’s liquidity constraint on competitive balance is ambiguous. However, if the low-valuation bidder is constrained, greater wealth unambiguously increases competitive balance. Surprisingly, if the low-valuation bidder has a constraint, a tighter constraint can increase his/her profit.     

The incidence of overdissipation in rent-seeking contests

Tullock's analysis of rent seeking and overdissipation is reconsidered. We show that, while equilibrium strategies do not permit overdissipation in expectation, for particular realizations of players' mixed strategies the total amount spent competing for rents can exceed the value of the prize. We also show that the cross-sectional incidence of overdissipation in the perfectly discriminating contest ranges from 0.50 to 0.44 as the number of players increases from two to infinity. Thus, even though the original analysis of overdissipation is flawed, there are instances in which rent-seekers spend more than the prize is worth.     

Anchoring political preferences: The structural bases of stable electoral decisions and political attitudes in Britain

Abstract. The paper applies a structural perspective to the analysis of political preferences. Examining two British surveys, the 1987 cross–section of the electorate and a panel survey that covers the 1983 and 1987 elections, the research explores the bases of persistent voting for the same party, location on left–right scales, and the probability of holding the same policy views on a host of different issues over time. A set of structural variables rests at the heart of the paper's theory: discussion networks, patterns of interactions with members of political parties, social class networks, and location in the social structure. Several hypotheses guide the analysis: The effects of the structural variables on the probability of casting a ballot for the same political party in any one election and in adjacent elections will remain, even after controlling for party identification; political party socialization; location on left–right scales; positions taken on any and all political issues; age, and past levels of electoral stability. The effects of structural variables on left–right position will remain, even after controlling for locations on alternative left–right scales. Finally, reinforcing attitudinal context provides the only consistent determinant of stable policy positions, after controlling for a host of alternative explanations including level of education; age; interest in politics, and a general propensity to offer stable answers to political questions.