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Effort and Performance in Public Policy Contests
Author(s) -
EPSTEIN GIL S.,
NITZAN SHMUEL
Publication year - 2006
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2006.00263.x
Subject(s) - comparative statics , economics , stochastic game , microeconomics , valuation (finance) , status quo , public policy , value (mathematics) , government (linguistics) , mathematics , market economy , linguistics , statistics , philosophy , finance , economic growth
Government intervention often gives rise to contests in which the possible “prizes” are determined by the status quo and some new public policy proposal. In this paper we study a 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. Our results extend the existing comparative statics studies that focus, in symmetric contests, on the effect of a change in the value of the prize or, in asymmetric contests, on the effect of one contestant's valuation of the prize. Our results hinge on a fundamental equation that specifies the equilibrium relationship between the strategic own‐stake effect and the strategic rival's‐stake effect. This fundamental equation clarifies the role of the three possible types of ability and stake asymmetry in determining the effect of payoff variations on the efforts and performance of the contestants.