the macroeconomics of fiscal consolidations in euro area countries we simulate a currency union dynamic general equilibrium model to assess the macroeconomic implications of permanently reducing the public debt to gross domestic product gdp ratio in euro area countries we obtain the following results first tax distortions are quantitatively significant second the best fiscal consolidation strategy is to permanently reduce both expenditures and tax rates third under such a consolidation strategy the transition is generally not costly as the gdp and investment would grow while private consumption would not fall finally spillovers to the rest of the euro area are generally expansionary

risk aversion in contests in a contest participants spend money or effort to increase their chances of winning a prize the authors examine primarily the following question could the timid the more risk averse have a better chance of winning in contests under limited liability the answer is always positive in the absence of limited liability there is no single answer whereas when the prize is shared as a function of effort the outcome is independent of the contestants risk aversion the authors also relate their results to self protection and examine some other implications of risk aversion copyright 1995 by royal economic society

truth effort and the legal battle in lawsuits relative success depends upon two main factors the true degree of fault and the efforts invested on eachside a proposed litigation success function displays thisdependence while satisfying other essential properties undertwo different protocols nash cournot and stackelberg solutions are obtained for the litigation efforts proportionate success and values of the lawsuit on each side outcomes are evaluated in terms of two normative criteria i achieving justice interpreted as equality between defendantfault and relative plaintiff success and ii minimizingaggregate litigation cost achievement of these aims isdetermined by the decisiveness of litigation effort relativeto true fault

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

an experimental investigation of asymmetric contests abstract contest theory has been used in industrial organization to describe phenomena like r d races or efforts to defend a monopoly position when pricing behavior is constrained by regulators competition can also take the form of a contest this paper reports on an experimental test of the effects of asymmetry in the tullock contest success function both the simultaneous move and sequential move frameworks are considered despite high levels of overbidding across the different conditions the introduction of asymmetries in the contest function generates experimental behavior on aggregate qualitatively consistent with the theoretical predictions at the individual level behavior seems divided into those subjects who bid very high amounts and those who bid very low amounts

contests as selection mechanisms the impact of risk aversion abstract we investigate how individual risk preferences affect the likelihood of selecting the more able contestant within a two player tullock contest our theoretical model yields two main predictions first an increase in the risk aversion of a player worsens her odds unless she already has a sufficiently large advantage second if the prize money is sufficiently large a less able but less risk averse contestant can achieve an equal or even higher probability of winning than a more able but more risk averse opponent in a laboratory experiment we confirm both the non monotonic impact and the compensating effect of risk aversion on winning probabilities our results suggest a novel explanation for the gender gap and the optimality of limited monetary incentives in selection contests

applying ethics to insider trading insider trading has received a bad name in recent decades the popular press makes it sound like an evil practice where those who engage in it are totally devoid of ethical principles yet not all insider trading is unethical and some studies have concluded that certain kinds of insider trading are actually beneficial to the greater investment community some scholars in philosophy law and economics have disputed whether insider trading should be punished at all while others assert that it should be illegal in all cases this paper explores the nature of insider trading and analyzes the issues to determine the positive and negative aspects of insider trading and how policy should be changed the best hope would be for studies to be made that isolate the individuals or groups who are fraudulently harmed by insider trading if any such groups exist then clearly worded legislation could be passed to prevent any fraud from being committed against these individuals and groups while allowing non fraudulent transactions to be completed without fear of prosecution until it can be clearly determined that someone is fraudulently harmed by insider trading there should be no law or regulation restricting the practice since such restrictions violate individual rights and will likely have a negative market reaction

distributional preferences in probabilistic and share contests we analyze nash equilibria of probabilistic and share contests where players have distributional preferences if players are sufficiently similar distributional preferences create multiple equilibria for the case of only mildly heterogeneous players equilibrium effort can be lower as well as higher than effort exerted by players with selfish preferences these findings can explain the following three anomalies observed in empirical tests of probabilistic and share contests the large variance of effort levels overspreading individual spending that exceeds the nash equilibrium prediction overspending and aggregate spending that exceeds the value of the prize overdissipation if players are sufficiently heterogeneous the game has a unique equilibrium that is more egalitarian than the selfish nash equilibrium it turns out that the less talented competitor may win the larger share of the prize if his inequality aversion is sufficiently strong we analyze how the equilibria evolve if the number of players becomes larger and how sequential moves influence behavior two new insights follow from the analysis of the sequential move game first sequential moves act as a coordination device in case of multiple simultaneous equilibria and second inequality aversion of the more egalitarian player can be used as a commitment device for low effort this effect can reverse the conventional wisdom that the underdog should lead

a designer s choice between single prize and parallel tournaments in this article i theoretically and experimentally compare a designer s profits from two tournament designs the first design is a standard winner take all tournament with a single prize the second design features two winner take all parallel tournaments with different prizes where individuals choose which tournament to enter before competing i develop a simple model that illustrates how the relative performances of these designs change as contestants abilities differ the theoretical model shows that the designer s profit is higher lower in the parallel tournament when contestants abilities differ greatly are similar i complement these findings with experimental evidence the experiments show that the parallel tournament is more profitable under high heterogeneity whereas under low heterogeneity the designer is better off with the single prize tournament furthermore high ability agents under participate and low ability agents over participate in the high prize tournament relative to the theoretical prediction jel c72 d82 j33 m51 m52

cooperation and distributive conflict if either property rights or institutions are weak agents who create wealth by cooperating will later have an incentive to fight over the distribution of it in this paper we investigate theoretically and experimentally the circumstances under which welfare losses from investment in distributional contests destroy welfare gains from voluntary cooperation we find that in situations where the return to cooperation is high subjects cooperate strongly and welfare exceeds the predicted non cooperation levels if returns to cooperation are low then subjects still cooperate but the resources wasted in the distributional conflict lead to lower welfare than if subjects had followed the theoretical prediction of not cooperating

dissipation of contestable rents by small numbers of contenders the theory of rent seeking with its origins in the observations of gordon tullock 1967 or to use jagdish bhagwati s 1982 proposed term the theory of directly unproductive profit seeking activities is concerned with the potentially adverse effects on resource allocation of incentives to cap ture and defend artificially contrived rents and transfers the scope for so cial loss proposed by the theory derives from the relation between the value of a contestable prize and the value of the resources attracted into the con test to determine the beneficiary of the prize underlying this social loss is a specification of how rational behavior by optimizing agents links the value of the prize sought to the resources expended it has been traditional to assume competitive behavior in describing the activities of lobbying and influence seeking then if some further condi tions are satisfied l the total value of the resources expended precisely equals the value of the prize sought so dissipation is complete 2 conse quently the social cost associated with contestability of a rent can be in ferred from the value of the rent itself and the detailed and hard to come by information on individual outlays made in the course of the contest be comes unnecessary by basing their analyses on competitive dissipation contributors to the rent seeking literature see the review by robert tollison 1982 have been able to presume that the observed value of a contested rent is an exact measure of the associated social cost of monopoly power or regu lation similarly in the trade theoretic literature where the rights contested are to quota premia or revenues from trade taxes krueger 1974 bhagwati

economic contests comparative reward schemes contests are situations in which an individual s reward depends on his performance relative to others students are graded on a curve the candidate with the most votes gets the political office the underling who performs best is promoted to the executive position contests are useful in dealing with indivisible rewards reducing monitoring costs and minimizing risks from common uncertainties they are employed to sort potential participants and once they have entered to induce appropriate effort from them with monitoring precision and prize spreads as potential choice variables optimal contest structures are derived for fair and unfair contests among equal and unequal participants the converse problems of climbing low ability individuals enter the contest designed for high ability candidates and slumming are shown to be manageable

contest functions theoretical foundations and issues in estimation contest functions alternatively contest success functions determine probabilities of winning and losing as a function of contestants e ort they are used widely in many areas of economics that employ contest games from tournaments and rent seeking to conflict and sports we first examine the theoretical foundations of contest functions and classify them into four types of derivation stochastic axiomatic optimally derived and microfounded the additive form which includes the ratio or tullock functional form can be derived in all four di erent ways we also explore issues in the econometric estimation of contest functions including concerns with data endogeneity and model comparison

risk attitudes and heterogeneity in simultaneous and sequential contests we prove existence and uniqueness of equilibrium in rent seeking contests in which players are heterogeneous in both risk preferences and production technology given identical linear production technology if the number of risk loving players is large enough the aggregate investment in equilibrium will exceed the rent and all risk neutral and risk averse players will exit the contest in simultaneous and sequential contests with two players we can identify the favorite and underdog based on both players preference parameters our theoretical results suggest that subjects in some recent contest experiments behaved as if they were risk loving

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

an experiment on sequential rent seeking in an experiment on sequential rent seeking we find that the theoretically predicted first mover advantage does not exist empirically rather a second mover advantage can be observed though the subgame perfect equilibrium can not prevail in experiment individual behavior is highly reasonable nevertheless such that subjects appear to play a reduced form of the original game we also observe that the efficient fair outcome can not be achieved because of the exploitation opportunity for the second mover the observed behavior is quite different from that in ultimatum and trust game experiments 2000 elsevier science b v all rights reserved

best of three contest experiments strategic versus psychological momentum abstract we conduct an experimental analysis of a best of three tullock contest intermediate prizes lead to higher efforts while increasing the role of luck as opposed to effort leads to lower efforts both intermediate prizes and luck reduce the probability of the contest ending in two rounds the patterns of players efforts and the probability that a contest ends in two rounds are consistent with strategic momentum i e a momentum generated due to strategic incentives inherent in the contest we do not find evidence for psychological momentum i e a momentum which emerges when winning affects players confidence similar to the previous studies of contests we find significantly higher efforts than predicted and strong heterogeneity in effort between the subjects

asymmetric discouragement in asymmetric contests we provide new experimental evidence which suggests an asymmetric discouragement effect in lottery contests with heterogeneous abilities compared to a symmetric contest subjects invest less effort when facing a stronger opponent but they invest the same when facing a weaker opponent our results can be explained by a simple model of disappointment aversion

reexamining efficient rent seeking in laboratory markets given millner and pratt s 1989 finding of behavior inconsistent with theory we reexamine efficient rent seeking in experimental markets we show that a when r 3 no nash equilibrium exists and therefore behavior has no theoretical benchmark to judge consistency and b when r 1 with a new experimental design utilizing an explicit expected payoff matrix rent seeking behavior is consistent with both nash equilibrium and dissipation hypotheses

war and conflict in economics theories applications and recent trends we review the main economic models of war and conflict these models vary in details but their implications are qualitatively consistent highlighting key commonalities across a variety of conflict settings recent empirical literature employing both laboratory and field data in many cases confirms the basic implications of conflict theory however this literature also presents important challenges to the way economists traditionally model conflict we finish our review by suggesting ways to address these challenges

rent seeking in groups abstract rent seeking contests between groups involve conflicts of interests at the levels of individuals groups and the society as a whole we conduct a series of economic experiments to study the behavior of groups and individuals competing against each other in rent seeking contests we find substantial over contribution to rent seeking relative to the equilibrium predictions of standard models regardless whether individuals compete against other individuals groups compete against other groups or individuals compete against groups

balance of power and the propensity of conflict we study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict our experimental results suggest in a simple bargaining game with an exogenous mediation proposal the likelihood of conflict is independent of the balance of power if bargaining involves endogenous demand choices however the likelihood of conflict is higher if power is more imbalanced even though endogenous bargaining outcomes reflect the players unequal fighting strengths strategic uncertainty causes outcomes to be most efficient when power is balanced in turn the importance of exogenous mediation proposals depends on the balance of power

an experimental investigation of efficient rent seeking the debate about the measurement of the amount of rent dissipated in rent seeking activities is unable to be answered by observations from the naturally occurring environment current theoretical investigations have indicated that a number of factors will affect the amount of rent that can be assumed to be dissipated by rent seeking the theory of efficient rent seeking predicts that the number of rent seekers their risk posture their ability to enter and exit the rent seeking process and the manner in which the probability of receiving a rent is determined will affect the amount of rent that is dissipated

information feedback and contest structure in rent seeking games we investigate the effects of information feedback in rent seeking games with two different contest structures in the share contest a contestant receives a share of the rent equal to her share of rent seeking expenditures while in the lottery contest a contestant wins the entire rent with probability equal to her share of rent seeking expenditures in share contests average expenditures converge to equilibrium levels when subjects only get feedback about own earnings and additional feedback about rivals choices and earnings raises average expenditures in lottery contests information feedback has an opposite and even stronger effect when subjects only get feedback on own earnings we observe high levels of rent dissipation usually exceeding the value of the rent and additional feedback about rivals choices and earnings has a significant moderating influence on expenditures in a follow up treatment we make information feedback endogenous by allowing contestants in a lottery contest to make public or private expenditures subjects make the vast majority of expenditures privately and overall excess expenditures are similar to the lottery contest with own feedback

risk aversion in rent seeking and rent augmenting games the effects of risk aversion are examined for two types of expenditures in rent seeking contests a rent seeking expenditures which improve the probability that the rent is obtained and b rent augmenting expenditures which increase the size of the rent to be awarded risk aversion is shown to reduce expenditures of type b unambiguously while having an indeterminate effect on those of type a these two contrasting results are shown to derive from the very different effects rent seeking and rent augmenting expenditures have on the riskiness of a player s position

inter team contests with power differential abstract we investigate the impact of asymmetry on behavior in inter team contests in asymmetric environments one team has a greater probability of winning given the same contribution level unfair contests or has a lower cost of contributing uneven contests we explore how such asymmetries impact behavior asking how being advantaged or disadvantaged influences contributions we find both advantaged and disadvantaged teams contribute much more than theory predicts but in such a way that ex post winning probabilities of the contests are consistent with theoretical predictions at the individual level contributions are predicted by beliefs about own team and opponent team contributions the determinants of contribution by members of the disadvantaged team differ depending on the nature of asymmetry contributions by the disadvantaged team members are responsive to beliefs about contribution by opponents in unfair contests while in uneven contests they are responsive to beliefs about the contribution by teammates

risk aversion and rent seeking an extension and some experimental evidence theoretical investigations indicate that the risk attitudes of individuals will effect the amount of rent that can be assumed to be dissipated by rent seeking activities following this line of investigation we extend hillman and katz s work to a small numbers case and demonstrate that the degree to which a monopoly rent is dissipated is dependent upon the structure of the risk attitudes of two risk averse individuals