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Overdissipation and Convergence in Rent-seeking Experiments: Cost structure and prize allocation rules

Author

Listed:
  • Subhasish M. Chowdhury

    (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich)

  • Roman M. Sheremeta

    (Argyros School of Business and Economics, Chapman University, USA)

  • Theodore L. Turocy

    (School of Economics, and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich)

Abstract
We study experimentally the effects of cost structure and prize allocation rules on the performance of rent-seeking contests. Most previous studies use a lottery prize rule and linear cost, and find both overdissipation relative to Nash equilibrium prediction and significant variation in individual subject efforts. In a 2 2 design, we investigate the effects of sharing the prize proportionally and of a convex cost function, while holding fixed the Nash equilibrium prediction for effort. We find that the share rule results in average effort closer to the Nash prediction, lower variation in individual efforts, and convergence of the distribution of individual efforts towards Nash over time. Combining the share rule with a convex cost function further enhances these results. Our findings indicate that a significant amount of subjects’ non-equilibrium behavior in contests can be explained by features of the experimental design. These results contribute towards design guidelines for contests based on behavioral principles that take into account contest features that may not affect the Nash equilibrium prediction. These lessons suggest design guidelines for future experiments on contests.

Suggested Citation

  • Subhasish M. Chowdhury & Roman M. Sheremeta & Theodore L. Turocy, 2012. "Overdissipation and Convergence in Rent-seeking Experiments: Cost structure and prize allocation rules," Working Papers 12-13, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:12-13
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. David Kelsey & Tigran Melkonyan, 2018. "Contests with ambiguity," Oxford Economic Papers, Oxford University Press, vol. 70(4), pages 1148-1169.
    2. Lim, Wooyoung & Matros, Alexander & Turocy, Theodore L., 2014. "Bounded rationality and group size in Tullock contests: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 155-167.
    3. Hoffmann, Magnus & Kolmar, Martin, 2017. "Distributional preferences in probabilistic and share contests," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 120-139.
    4. Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 491-514, July.
    5. Cary Deck & Salar Jahedi, 2015. "Time Discounting in Strategic Contests," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(1), pages 151-164, March.
    6. Shupp, Robert & Sheremeta, Roman M. & Schmidt, David & Walker, James, 2013. "Resource allocation contests: Experimental evidence," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 257-267.
    7. Philip Brookins & Dmitry Ryvkin, 2014. "An experimental study of bidding in contests of incomplete information," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 245-261, June.
    8. repec:uea:wcbess:13-11 is not listed on IDEAS
    9. Shakun D. Mago & Anya C. Savikhin & Roman M. Sheremeta, 2012. "Facing Your Opponents: Social identification and information feedback in contests," Working Papers 12-15, Chapman University, Economic Science Institute.
    10. Fallucchi, Francesco & Renner, Elke & Sefton, Martin, 2013. "Information feedback and contest structure in rent-seeking games," European Economic Review, Elsevier, vol. 64(C), pages 223-240.
    11. Prasada, D.V. Pahan & Bose, Gautam, 2018. "Rational conflict and pre-commitment to peace," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 215-238.
    12. Dutcher, E. Glenn & Balafoutas, Loukas & Lindner, Florian & Ryvkin, Dmitry & Sutter, Matthias, 2015. "Strive to be first or avoid being last: An experiment on relative performance incentives," Games and Economic Behavior, Elsevier, vol. 94(C), pages 39-56.
    13. Erik O. Kimbrough & Roman M. Sheremeta, 2012. "Why Can’t We Be Friends? Entitlements, bargaining, and conflict," Working Papers 12-16, Chapman University, Economic Science Institute.

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    More about this item

    Keywords

    rent-seeking; contest; contest design; experiments; quantal response; over-dissipation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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