Effort and Performance in Public-Policy Contests

CESifo Working Paper No. 634

January 2002

EFFORT AND PERFORMANCE IN PUBLIC-POLICY
CONTESTS

Abstract

Government intervention often gives rise to contests in which the possible
‘prizes’ are determined by the existing status-quo and some new public-
policy proposal . In this paper we study the general class of such two-player
public-policy contests and examine the effect of a change in the proposed
policy, a change that may affect the payoffs of the two contestants, on their
effort and performance. We extend the existing comparative statics studies
that focus on the effect of changes either in the value of the prize in
symmetric contests or in one of the contestants’ valuation of the prize in
asymmetric contests. Our results hinge on the relationship between the
strategic own-stake (“income”) effect and the strategic rival’s-stake
(“substitution”) effect. This relationship is determined by three types of ability
and stakes asymmetry between the contestants. In particular, we specify the
asymmetry condition under which a more restrained government intervention
that reduces the contestants’ prizes has the perverse effect of increasing
their aggregate lobbying efforts.

Keywords: public-policy contests, policy reforms, lobbying efforts, strategic
own-stake effect, strategic rival’s-stake (“substitution”) effect.

JEL Classification: D72, D6.

Gil S. Epstein
Department of Economics
Bar-Ilan University
52900 Ramat-Gan
Israel

Shmuel Nitzan

Department of Economics
Bar-Ilan University
52900 Ramat-Gan

Israel

[email protected]

<<   1   2   3   4   5   >>

More intriguing information