Effort and Performance in Public-Policy Contests

Under a type (i) reform with i=H, an increase in the proposed policy increases the
stakes-asymmetry between the contestants . In other words, such a reform tends to
increase the disadvantage of the LB player in terms of stakes. If he is also
disadvantageous in terms of ability (marginal contest winning probability), then, by
Corollary 5.1 (a), the proposed increase in I reduces both his effort (see Proposition 2)
and his probability of winning the contest. Notice that this is the case, despite the
possible decline in the effort exerted by the HB player. Under a type-(i) reform with
i=L, an increase in the proposed policy reduces the stakes-asymmetry between the
contestants . That is, the LB player becomes less disadvantageous in terms of the
contest stakes. If he also has a disadvantage in terms of ability (marginal contest
winning probability), then, by Corollary 5.1 (b), the proposed increase in I increases
his probability of winning the contest, despite the fact that his effort need not rise (see
Proposition 2).

V. Conclusion

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.
Since a proposed policy reform has different implications for different interest groups,
these groups make efforts to affect in their favor the probability of approval of the
proposed public policy. A change in the proposed policy modifies the stakes of the
interest groups who take part in the contest on the approval or rejection of the
proposed policy. Such a change has two effects on the nature of the public-policy
contest. On the one hand, it affects the degree of competition by increasing or
decreasing the sum of the potential prizes (stakes). On the other hand, it also affects
the contest degree of competition by increasing or decreasing the asymmetry between
the contestants’ stakes (prize valuations). What determines the contestants’ effort
response to the proposed policy reform and, in turn, the change in their probability of
winning the contest, are three asymmetry factors: The existing stakes-asymmetry; the
asymmetry in the effect of a proposed reform on the existing stakes; and the ability-
asymmetry: the asymmetry in the effect of a change in a contestant’s effort on his
own and on his opponent’s marginal probability of winning the contest.

We studied a general class of two-player public-policy contests and examined
the effect of a change in the proposed policy, a change that may affect the payoff of
one contestant or the payoffs of the two contestants, on their effort and performance.

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