We investigate how heterogeneity in contestants’ investment costs affects competition expenditures in a dynamic elimination contest with different seeding variants of contestants. Theory predicts that expenditures in dynamic contests are lower when competitors are heterogeneous than when they are homogeneous. Cost heterogeneity influences expenditures directly – by inducing weak and strong competitors to reduce their expenditures – and indirectly – through their influence on continuation values. We present evidence from lab experiments that is qualitatively in line with the theoretical prediction for contestants with low investment costs: they incorporate the heterogeneity and the differences in continuation values when competing in stage one and they decrease their expenditures when competing against a weak agent in stage two. For high-cost contestants, the theoretical predictions are not confirmed: expenditures in heterogeneous interactions are not lower and sometimes even higher. As a consequence, we find that total expenditures in heterogeneous dynamic contests are not necessarily lower than in homogeneous ones

Heterogeneity in Rent-Seeking Contests with Multiple Stages: Theory and Experimental Evidence

Oexl R;
2023-01-01

Abstract

We investigate how heterogeneity in contestants’ investment costs affects competition expenditures in a dynamic elimination contest with different seeding variants of contestants. Theory predicts that expenditures in dynamic contests are lower when competitors are heterogeneous than when they are homogeneous. Cost heterogeneity influences expenditures directly – by inducing weak and strong competitors to reduce their expenditures – and indirectly – through their influence on continuation values. We present evidence from lab experiments that is qualitatively in line with the theoretical prediction for contestants with low investment costs: they incorporate the heterogeneity and the differences in continuation values when competing in stage one and they decrease their expenditures when competing against a weak agent in stage two. For high-cost contestants, the theoretical predictions are not confirmed: expenditures in heterogeneous interactions are not lower and sometimes even higher. As a consequence, we find that total expenditures in heterogeneous dynamic contests are not necessarily lower than in homogeneous ones
2023
2023
Experiment; Heterogeneity; Multi-stage contest
Hoertnagl, T; Kerschbamer, R; Oexl, R; Stracke, R; Sunde, U
File in questo prodotto:
File Dimensione Formato  
8_Publication_Hoertnagl_Kerschbamer_Oexl_Stracke_Sunde_2023.pdf

accesso aperto

Tipologia: Versione Editoriale (PDF)
Licenza: Creative commons
Dimensione 841.1 kB
Formato Adobe PDF
841.1 kB Adobe PDF Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11383/2184241
 Attenzione

L'Ateneo sottopone a validazione solo i file PDF allegati

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact