Baik (1994). Here the parameter σ represents the asymmetry between the lobbying
abilities of the two players. Note that when σ <1 the HB player has an ability
disadvantage relative to the LB player. It can be shown that under this particular
contest success function, Sign (
∂ 2PrL
∂xL∂xH
) = Sign (PrL-PrH ) and, therefore, for some
σ * < 1, Pr = Pr =1/2 and
LH
∂ 2Prl
∂xL∂xH
∂ 2PrH
∂xH∂xL
= 0 . By Corollary 1.1 we get
Corollary 1.3: If PrH
σ h ( xH )
σ h ( xH ) + h ( xL ) ,
where σ > 0, h(0) ≥ 0 and h(xi) is
increasing in x i , then
∂**
xh ∂xL
-----> 0, -----> 0 and
∂nH ∂nL
'x ≥ 0 d' ≤ 0 ⇔ PrH ≤ 1/2 .
∂nH ∂nL
This third corollary generalizes Proposition 1 in Baik (1994).
B. Complete incidence: Policy reforms affecting both stakes
When a change in I affects the stakes of the two contestants, as in reforms type (i),
(iv) and (v), ηL and η H are positive or negative. By the fundamental equation (8),
when the contestants’ efforts are independent, the sensitivity of every contestant’s
effort with respect to a proposed policy reform is always unequivocal. When the
contestants’ efforts are not independent, the sensitivity of one of the contestants’
effort with respect to a proposed policy reform is always unequivocal because the sign
of his strategic rival’s-stake (“substitution”) effect is equal to the sign of his strategic
own-stake (“income”) effect. The sensitivity of his opponent’s effort with respect to
the proposed policy reform is ambiguous, depending on whether his strategic own-
stake (“income”) effect is larger than, equal to or smaller than his strategic rival’s-
stake (“substitution”) effect. Using (8) we thus get
declining in his effort . This requires additional assumptions on the first and second derivatives of the
function h(xi ) .
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