Effort and Performance in Public-Policy Contests



x*H             xL >         ∂2 PrH        >   ∂2 PrL

----> 0 and   l--0 --Hn---—n„ nτ .

I               I <          ∂xH 2 L H < ∂xLxH H L

Notice that by Proposition 2(b), the conditions resolving the ambiguity
regarding the sensitivity of
j’s effort to a proposed policy reform involve the three
elements of asymmetry between the contestants introduced in sections II and III:

2 Pr

A1j =       j


( d 2 Pr-


ji


dx 2

< dxi


2 nj 3 ηj

j = — and A j = —. In fact, the comparison between


ni


ηi


the strategic rival’s-stake
(“income”) effect depends
represented by
A1 j and


(“substitution”) effect and the strategic own-stake
on the relationship between the ability-asymmetry
the normalized stakes-asymmetry represented by

3 ηj

A 3 j      п

—=- = z i . Specifically, by Proposition 2 , it can be easily verified that

A2j ηi

n

Corollary 2.2: —l0
I


xj
—-

I


A1j


A ,j

A2j


i- > 0

I


j

—-
I

A1j


To illustrate the economic interpretation of this corollary, suppose, for example, that
the
HB player has a disadvantage in terms of his equilibrium ability (marginal
2 PrH

winning probability), that is, -----— < 0 . By Proposition 2, when the proposed

x x

HL

reform is of type (iv), an increase in I induces the LB player to increase his effort. In
this case the
HB player’s effort is a strategic substitute to the LB player’s effort, so the
strategic substitution effect induces the
HB player to reduce his effort. However, his
effort is a “normal” good, so the increase in his stake induces him to increase his
effort. The latter effect is dominant and the
HB player also increases his effort, if his
advantage in terms of stakes, which is represented by the stake-asymmetry measure

3    ηH

A h _ Пп
a
2 h  η l/

п


H is larger than his ability disadvantage, which is represented by the

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