This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest with proportional probabilities, where all bidders value the prize equally. We show that by fixing the number of tickets, thus setting a limit to total expenditures, it is possible to maximize the auctioneer's revenue and obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is significantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery

Stanca, L., & Faravelli, M. (2010). When Less is More: Rationing and Rent Dissipation in Stochastic Contests [Working paper del dipartimento].

When Less is More: Rationing and Rent Dissipation in Stochastic Contests

STANCA, LUCA MATTEO;FARAVELLI, MARCO
2010-09

Abstract

This paper shows how to maximize revenue when a contest is noisy. We consider a case where two or more contestants bid for a prize in a stochastic contest with proportional probabilities, where all bidders value the prize equally. We show that by fixing the number of tickets, thus setting a limit to total expenditures, it is possible to maximize the auctioneer's revenue and obtain (almost) full rent dissipation. We test this hypothesis with a laboratory experiment. The results indicate that, as predicted, revenue is significantly higher in a lottery with rationing than in a standard lottery. On the other hand, an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery
Working paper del dipartimento
Scientifica
Stochastic Contests; Rent Seeking; Laboratory Experiments
English
Stanca, L., & Faravelli, M. (2010). When Less is More: Rationing and Rent Dissipation in Stochastic Contests [Working paper del dipartimento].
Stanca, L; Faravelli, M
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10281/22992
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