Political culture and discrimination in contests

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S ABSTRACT Political Culture and Discrimination in Contests *Many economic and political decisions are the outcome of strategic contests for a given prize. The nature of such contests can be determined by a designer who is driven by political considerations with a specific political culture. The main objective of this study is to analyze the effect of political culture and of valuation asymmetry on discrimination between the contestants. The weights assigned to the public well being and the contestants' efforts represent the political culture while discrimination is an endogenous variable that characterizes the mechanism allocating the prize. We consider situations under which the optimal bias of the designer is in favor of the contestant with the larger or smaller prize valuation and examine the effect of changes in the political culture and in valuation asymmetry on the designer's preferred discrimination between the contestants. Focusing on the two most widely studied types of contest success functions (deterministic all-pay-auctions and logit CSFs), we show that an all-pay auction is always the preferred CSF from the point of view of the contest designer. This result provides a new political-economic micro foundation to some of the most commonly used models in the contest literature.JEL Classification: H0

Equity and effectiveness of optimal taxation in contests under an all-pay auction

“…Such superiority is attained without resorting to structural discrimination that affects the parameters of the contest success function, as in Clark and Riis (2000), Epstein et al (2011a), (2011b), Franke (2007), Franke et al (2011) andLien (1990), which may be difficult to control or even illegal. Furthermore, allowing taxation that result in a budget surplus, the optimal differential taxation scheme under the APA generates the maximal possible total efforts, which are equal to the highest contestant's value of the prize.…”

“…That is, in general, this seemingly plausible expectation is not fulfilled. This is the case when the CSF is the most commonly assumed lottery, Tullock (1980), and, in particular, the simple lottery that will be used to diagrammatically illustrate our 1 Alternative forms of discrimination via the control of the contest success function are examined in Clark and Riis (2000), Epstein et al (2011a), (2011b), Franke (2007) , Franke et al (2011) and Lien (1990). 2 For a recent study on the meaning and rationalization of CSFs, see Corchon and Dahm (2010). claim.…”

Lottery Versus All-Pay Auction Contests – A Revenue Dominance Theorem

“…Recently, there is a growing interest in relaxing these limiting assumptions: The heterogeneity of contestants comes into the focus of analysis and, as a consequence, also the question of how the contest organizer should exploit heterogeneity among contestants by treating different contestants differently. Recent examples that follow this approach are Siegel (2010Siegel ( , 2011, [12,13], Kirkegaard (2010), [10], Epstein et al (2011), [5], Szech (2011), [15], and Franke et al (2011), [7].…”

“…This is certainly not the case in many real world contests (just think of the contest rules for a job opening of a professorship), where the contest organizer has control over some variables, which bias the contest systematically (and legally) in favor of certain contestants (see also Epstein et al (2011), [5], for a detailed discussion of this type of bias in public procurement in Israel). This gives the contest organizer additional power to promote her interests, in particular in the presence of heterogeneous contestants.…”

“…This gives the contest organizer additional power to promote her interests, in particular in the presence of heterogeneous contestants. This situation is analyzed for the case of two contestants in Epstein et al (2011), [5], where the contest organizer can specify individual weights for each of two contestants. Setting individual weights reflects her potential for discriminating between the two contestants which has consequences for the revenue comparison between all-pay auction and lottery contest: The optimally biased all-pay auction revenue-dominates any biased lottery contest, independently of heterogeneity between the two contestants.…”