On interdependent preferences and sequential structures in rent-seeking contests

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2011-05-19

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Abstract

The work focuses on two different extensions to the standard rent-seeking model by Gordon Tullock (1980). The first part analyzes the effects of changing the objection function of players in a rent-seeking contest. If players do not only focus on their own payoff, but also on the payoff of their competitors, individual payoff maximization does not yield the highest absolute payoff. Instead, relative payoff maximization yields a higher payoff. The second part focuses on the question of endogenous order of moves. While Leininger (1993) showed for rent-seeking contests with two player that the player with higher valuation will always move later, this work finds for rent-seeking contests with more than two players, that simultaneous moves can occur in a subgame-perfect equilibrium even for heterogenous players, as long as the equilibrium effort of the player with highest valuation does not exceed aggregate equilibrium effort of her opponents (in both the simultaneous and respective sequential subgame). Therefore, the assumption of simultaneous moves can be justified as subgame-perfect for a large set of contests.

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Keywords

Endogenous order of moves, Game theory, Interdependent preferences, Rent-seeking

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