Experimental tests of Tullock’s contest with and without winner refunds |
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| Authors: | Chen Cohen Tal Shavit |
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| Institution: | 1. Ashkelon Academic College, Israel;2. The College of Management Academic Studies, 7 Rabin Ave., Rishon-Le’Zion, Israel;1. Department of Economics, University of Bonn, Adenauerallee 24–42, 53113 Bonn, Germany;2. Hausdorff Center for Mathematics, University of Bonn, Adenauerallee 24–42, 53113 Bonn, Germany;1. Department of Economics, Management and Statistics, University of Milano-Bicocca, U6 Building, Piazza dell’Ateneo Nuovo 1, 20126 Milano, Italy;2. Department of Mathematics and Applications, University of Milano-Bicocca, U5 Building, Via Cozzi 55, 20125 Milano, Italy;1. University of Bonn, Institute for Applied Microeconomics, Adenauerallee 24-42, 53113 Bonn, Germany;2. University of Stavanger, UiS Business School, Department of Economics, 4036 Stavanger, Norway |
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| Abstract: | We examined experimentally the two-agent, complete-information Tullock’s contest, with and without refund for the winner. We find that the average bids in the refund group are higher than the average bids in the group without a refund, consistent with the theory. However, the auctioneer does not increase his profit if he changes the design of the contest by reimbursing the winner’s cost of effort. We also find underbidding for the low-valuation players and overbidding for the high-valuation player in a contest with a refund. Some players chose the corner solution of staying out of the game by biding zero. |
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