Abstract
We introduce a novel method of modellingcontests that avoids the complexitiesencountered by the `best response function'approach. We analyse contests in which (i)there are many risk averse players, (ii)attitudes to risk may differ acrossindividuals, and (iii) the technology thattransforms rent-seeking effort intoprobability of winning may also differacross individuals. We establish that, ifevery player has a constant degree ofabsolute risk aversion, a uniqueequilibrium exists. We also establishcomparative static results and examine howthe level of rent dissipation is affectedby the heterogeneity of attitudes towardsrisk and the precise nature of the technology.
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Cornes, R., Hartley, R. Risk Aversion, Heterogeneity and Contests. Public Choice 117, 1–25 (2003). https://doi.org/10.1023/A:1026136008608
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DOI: https://doi.org/10.1023/A:1026136008608