Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)
The Power of Money: Wealth Effects in Contests.
() and Nicolas Treich
Abstract: Two wealth effects typically arise in any contest: i)
wealth decreases the marginal cost of effort, but also ii) decreases the
marginal benefit of winning the contest. In this paper, we introduce three
types of strategic contest models depending on whether the first, second,
or both wealth effects play a role: namely, a privilege contest, an ability
contest, and a rent-seeking contest. Our theoretical analysis reveals that
the effects of wealth and wealth inequality are strongly “contestdependent”
and are complex in the sense that they depend on the decisiveness of the
contest and on the higher-order derivatives of the utility functions of
wealth. Our analysis thus does not support general claims that the rich
should lobby more or that low economic growth and wealth inequality should
lead to additional conflicts.
Keywords: Conflict; contest; rent-seeking; wealth; risk aversion; lobbying; power; redistribution.; (follow links to similar papers)
JEL-Codes: C72; D72; D74; D81; (follow links to similar papers)
45 pages, July 9, 2013
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