Contest success functions

Summary Tournaments, conflict, and rent-seeking have been modelled as contests in which participants exert effort to increase their probability of winning a prize. A Contest Success Function (CSF) provides each player's probability of winning as a function of all players' efforts. In this paper the additive CSF employed in most contests is axiomatized, with an independence from irrelevant alternatives property as the key axiom. Two frequently used functional forms are also axiomatized: one in which winning probabilities depend on the ratio of players' efforts and the other in which winning probabilities depend on the difference in efforts.I am grateful to three anonymous referees, Jack Hirshleifer, Guillermo Owen, and especially Duncan Luce for their helpful comments, and to the UC Irvine Academic Senate and the NSF for financial support.     

A multi-stage race model with strategic interaction: An agent-based simulation approach

We consider a multi-stage race characterized by technological uncertainty and winner-take-all stakes. A number of studies have found that players in such a race tend to behave strategically by adjusting their effort levels according to their relative ranks. The aim of the present study was to examine the dynamics and the results of such interaction. For this purpose, we employed an agent-based computational approach that enabled us to better understand the dynamics of a race, particularly those in which players exhibit heterogeneous behaviors. The results found that strategic interaction decreases the total cost but also results in delaying the completion of a race. Also, it was discovered, larger budgets rather than strategy differences have more significant effects on the probability of players winning a race. Finally, our study suggested that early preemption is an effective strategy that can improve the probability of winning races substantially.     

Communication and reputation in procurement auctions — Some empirical evidence

This paper studies communication and reputation in market interactions using data from online procurement auctions. Positive reputation ratings and engaging in communication increase a bidder’s probability of winning. Messages are primarily used to reduce the asymmetric information associated with transactions.     

Signal Jamming in Pretrial Negotiation with Multiple Defendants

This article analyzes the pretrial settlement process among an uninformed plaintiff and multiple defendants who share information about the winning chances of their cases. We show that when the chances are negatively correlated, cross-type subsidization occurs to circumvent the possibility of signal jamming, that is, the settlement offer of a strong defendant (a weak defendant) is distorted upward (downward), as far as the no-distortion equilibrium is not viable. In this equilibrium, the plaintiff settles with defendants with probability one.     

Uniqueness of stationary equilibrium payoffs in coalitional bargaining

We study a model of sequential bargaining in which, in each period before an agreement is reached, the proposer?s identity is randomly determined, the proposer suggests a division of a pie of size one, each other agent either approves or rejects the proposal, and the proposal is implemented if the set of approving agents is a winning coalition for the proposer. The theory of the fixed point index is used to show that stationary equilibrium expected payoffs of this coalitional bargaining game are unique. This generalizes Eraslan [34] insofar as: (a) there are no restrictions on the structure of sets of winning coalitions; (b) different proposers may have different sets of winning coalitions; (c) there may be a positive probability that no proposer is selected.     

Evolutionary stability of social norms in a socioeconomic equilibrium model

A hybrid of a model of economic equilibrium in two markets and a social game is formed. The link between the two is established through a social norm that conditions correct social behavior on economic variables and therefore distorts the economic equilibrium allocation. The initial endowment of an individual determines whether she gains from a social norm. The evolution of norms is examined in a dynamic model where norms are more likely to persist if they deliver higher utility to their believers. Also it is assumed that norms lose importance when they are disobeyed by their believers. Optimally coordinating norms are not necessarily evolutionarily stable, and a suboptimal norm can be the outcome of the evolutionary process.     

Egalitarian norms,economic development,and ethnic polarization

Economic development generally implies that traditional egalitarian norms and beliefs are replaced by modern individualistic values. Particularly when opportunities for advancement are unequally presented to people, this transformation may be accompanied by polarization and violent conflict. We illustrate this point by describing the processes of land privatization in Sub-Saharan Africa and then present two models that capture some salient aspects of this transformation in rural communities, including the possibility of polarization. We find that the support of egalitarian norms is notably strong when new opportunities are available for only a few people or when the community is socially unstable. Moreover, in unstable communities, polarization is strongest when the group with the most lucrative opportunities comprises half the population.     

Endowment effects in contests

We experimentally study overbidding in contests and find that overbidding is significantly higher when subjects are given a large per-experiment endowment rather than when the endowment is given per-period. Risk-aversion and non-monetary utility of winning can partially explain our findings.     

The (hidden) costs of political instability: Evidence from Kenya's 2007 election crisis

This paper studies the microeconomic impacts of the political crisis and civil conflict that immediately followed the December 2007 presidential election in Kenya. Income, expenditures, and consumption dramatically declined for a broad segment of the rural population for the duration of the conflict. To make up for the income shortfall, women who supply transactional sex engaged in higher risk sex both during and after the crisis. While this particular crisis was likely too short for these behavioral responses to seriously increase the risk of HIV or other STIs for these women, such responses could have long-term repercussions for health in countries with longer or more frequent crises. Overall, our results suggest that social unrest can be an important channel through which political instability can affect long-term outcomes such as health.     

On the efficiency of racetrack betting market: a new test for the favourite-longshot bias

A number of empirical studies on the efficiency of racetrack betting market have shown the ‘favourite-longshot bias,’ which means longshots are overbet while favourites are underbet. Asian markets such as Hong Kong and Japan, however, have produced some contradictory empirical evidence to the bias. One critical element in the efficiency test procedure is how to assess the unobservable objective winning probability of a horse in a race. This paper proposes a new test framework with a more general evaluation of the objective probability of winning than the traditional method. Unlike the traditional method, our model allows the heterogeneity of the horses and the races. We apply the new empirical method to test whether the favourite-longshot bias is present in racetrack betting market of Korea. We found that the favourite-longshot bias exists in the racetrack market of Korea and the result distinguishes Korean racetrack market from other Asian markets.     

Aiding violence or peace? The impact of foreign aid on the risk of civil conflict in sub-Saharan Africa

This paper considers the impact of foreign aid flows on the risk of civil conflict. We improve on earlier studies on this topic by addressing the problem of the endogenous aid allocation using GDP levels of donor countries as instruments. A more structural addition to the literature is that we efficiently control for unobserved country specific effects in typical conflict onset and conflict continuation models by first differencing. The literature often overlooks the dynamic nature of these types of models, thereby forcing unlikely i.i.d. structures on the error terms implicitly.¹ As a consequence, malfunctioning institutions, deep-rooted political grievances, or any other obvious, yet unobserved and time persistent determinants of war are simply assumed away. We find a statistically significant and economically important negative effect of foreign aid flows on the probability of ongoing civil conflicts to continue (the continuation probability), such that increasing aid flows tends to decrease civil conflict duration. We do not find a significant relationship between aid flows and the probability of civil conflicts to start (the onset probability).     

Prize sharing in collective contests

The characteristics of endogenously determined sharing rules and the group-size paradox are studied in a model of group contest with the following features: (i) The prize has mixed private–public good characteristics. (ii) Groups can differ in marginal cost of effort and their membership size. (iii) In each group the members decide how much effort to put without observing the sharing rules of the other groups. It is shown that endogenous determination of group sharing rules completely eliminates the group-size paradox, i.e. a larger group always attains a higher winning probability than a smaller group, unless the prize is purely private. In addition, an interesting pattern of equilibrium group sharing rules is revealed: The group attaining the lower winning probability is the one choosing the rule giving higher incentives to the members.     

MIMICKING THE WINNER LEADS TO WAR: AN EVOLUTIONARY ANALYSIS OF CONFLICT AND COOPERATION*

This note applies an evolutionary analysis to Skaperdas's (1992) static model of conflict and cooperation, in which agents are faced with trade‐offs between joint production and share competition. We adopt the stochastic evolution approach, and assume that each agent occasionally mimics the action of the winner of the stage. In contrast to Skaperdas's results that justify full or partial cooperation in productive activity, the long‐run equilibrium must exhibit total conflict; nobody engages in production at all.     

When are stabilizations delayed? Alesina-Drazen revisited

In an influential article, Alesina and Drazen [1991. Why are Stabilizations Delayed? American Economic Review 81, 1170-1188] model delay of stabilization as the result of a struggle between political groups supporting reform plans with different distributional implications. In this paper we show that ex ante asymmetries in the costs of delay for the groups will reduce the probability of conflict and will lead to a shorter expected delay. Accurate common information about the cost of delay may lead to no delay at all. In an asymmetric conflict, a wider divergence in the distributional implications of reform will reduce the probability of conflict but will lead to a longer expected delay. We motivate the asymmetric model of delay by reference to Latin American episodes of the 1980s.     

Asymmetric reimbursement system in an environmental conflict

This article explores how a fair-minded regulator has to set policy through an asymmetric reimbursement. The lawyer for a citizen group works on a contingent-fee basis, whereas a polluting firm has either in-house legal advice or lawyers on retainer. Under an asymmetric reimbursement rule we show: (i) the case goes to settlement if the objective merits of the case favour the citizen group; (ii) whereas it goes to trial, the probability winning the citizen group has is less than 50%, and the reimbursement policy incurs the total effort in trial to increase if the merits of the case favour the firm.     

Rock Paper Scissors

Rock Paper Scissors is used to resolve conflict when a compromise is not possible. Individuals playing ``games' tend to have biases they prefer to play. I show that Rock Paper Scissors with biased players results in a player with a high valuation for winning being victorious with a probability greater than a player with a low valuation. Thus, it frequently achieves the efficient outcome. Furthermore, as the benefit to victory increases for all players, victory for each player becomes equally likely. Therefore, it is often efficient for minor conflicts while it performs no better than a coin-flip for major conflicts.      

Identity,Utility, and Cooperative Behaviour: An Evolutionary Perspective*†

This paper provides an argument for the advantage of a preference for identity‐consistent behaviour from an evolutionary point of view. Within a stylized model of social interaction, it is shown that the development of cooperative social norms is greatly facilitated if the agents possess a preference for identity‐consistent behaviour. As compliance with cooperative norms (in the long run) has a positive effect on the agents’ pay‐offs, it is argued that such a preference is evolutionarily advantageous. Notably, the argument, which assumes that agents always act in accordance with their preferences, also accounts for the cost of those features that are crucial for the selection process.     

INTIMIDATION: LINKING NEGOTIATION AND CONFLICT

A challenger wants a resource initially held by a defender, who can negotiate a settlement by offering to share the resource. If Challenger rejects, conflict ensues. During conflict, each player could be a tough type for whom fighting is costless. Therefore, nonconcession intimidates the opponent into conceding. Unlike in models where negotiations happen in the shadow of exogenously specified conflicts, offers made during negotiations determine how conflict unfolds if negotiations fail. In turn, how conflict is expected to unfold determines the players' negotiating positions. In equilibrium, negotiations always fail with positive probability, even if players face a high cost of conflict. Allowing multiple offers leads to brinkmanship—the only acceptable offer is the one made when conflict is imminent. If negotiations fail, conflict is prolonged and not duration dependent.     

Selection effects in auctions for monopoly rights

We demonstrate that auctioning market licenses may result in higher market prices than assigning them via more random allocation mechanisms. When future market profit is uncertain, winning an auction is like winning a lottery ticket. If firms differ in risk attitudes, auctions select the least risk-averse firm, which, in turn, set a higher price (or a higher quantity, in case quantity is the decision variable) in the marketplace than an average firm.     

New light on the longshot bias

The longshot bias is the tendency for bettors to put more money on horses with long odds than is justified by their objective probability of winning: thus favourites win more often than projected by their odds. This challenges normative assumptions as it means the return increases with the probability of winning. Even though the longshot bias is well-known, it has defied authoritative explanation. This article draws on studies of the longshot bias over 50 years across four continents to show that its nature is consistent with two bettor populations. One is risk-averse, knowledgeable about winners, backs favourites, believes in the gambler's fallacy, and has a positive expected return. The other, a larger group is risk loving, backs longshots, believes in hot hands, and has a significant, negative expected return. The crossover between the two groups occurs where the probability of a positive result is about 0.2. This matches the transition from risk aversion to risk embrace which has been found in a variety of behavioural studies.