When Less is More: Rationing and Rent Dissipation in Stochastic Contests
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.
Year of publication: |
2010
|
---|---|
Authors: | Faravelli, Marco ; Stanca, Luca |
Institutions: | School of Economics, University of Queensland |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Mandate and Paternalism: A Theory of Large Elections
Faravelli, Marco, (2012)
-
Faravelli, Marco, (2012)
-
Single versus multiple prize contests to finance public goods : theory and experimental evidence
Faravelli, Marco, (2007)
- More ...