for appropriate regulation.1 Capital owners and a workers union can be engaged in a
contest that determines the minimum wage, and so on2. The outcome of such contests
depends on the contestants’ exerted efforts (fighting, lobbying or rent-seeking efforts),
that depend, in turn, on the parameters of the contest and, in particular, on the
contestants’ payoffs in the event that the public-policy proposal is approved or
rejected. Some of the above examples are elaborated in the sequel to illustrate the
effect of a policy reform on the payoff structure of the contestants.
A major concern in the contest literature has been the issue of how do changes
in the parameters of the contest (number, valuations and abilities of the contestants
and the nature of the information they have) affect their equilibrium efforts and the
extent of relative prize dissipation, Hillman and Riley (1989), Hurley and Shogren
(1998), Nitzan (1994). In addition, attention has been paid to the effect of changes in
these parameters on the contestants’ expected payoffs, Baik (1994), Gradstein(1995)
and Nti (1997, 1999) and on their aggregate expected payoff, Epstein and Nitzan
(2001b). The main comparative statics concern of this study is the clarification of the
effect of changes in public policy that determine the prize system on the contestants’
efforts and performance: probability of winning the contest. Earlier studies examined
the sensitivity of total efforts to changes either in the value of the prize or in the prize
valuation of one of the contestants. Our extended comparative statics analysis focuses
on the effects of a change in the proposed public policy that generates simultaneous
modifications in the prize valuations of all the contestants. Nevertheless, even in those
cases that such a change only modifies the prize valuation of a single contestant, we
generalize the existing results that dealt with special forms of our general contest
success function.
1 A special case of this setting is studied by Baik (1999) who analyzes the welfare effect of consumer
opposition to the existence of monopoly rents.
2
Two recent examples from U.S politics that illustrate the public-policy contest that we study are the
congressional reviews of late-term Clinton administration actions on ergonomics and environmental
regulations on land use in national forests. Both regulations were reviewed and criticized by the new
Congress, and both could have been squelched. But the ergonomics regulations (a decade in the
making) were overturned under the Congressional Review Act of 1996, while the environmental
regulations were allowed to stand. The explanations for these outcomes can be traced to the strength of
the interest groups supporting the regulations (organized labor and the environmental lobby,