Why are stabilisations delayed : an experiment with an application to all pay auctions

Kirchkamp, Oliver

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URL: http://ub-madoc.bib.uni-mannheim.de/2738
URN: urn:nbn:de:bsz:180-madoc-27381
Document Type: Working paper
Year of publication: 2004
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: C72 C92 D44 E62 H30 ,
Subject headings (SWD): Finanzpolitik , Reorganisation , Spieltheorie , Auktionstheorie , Public-Choice-Theorie
Keywords (English): War of attrition , all-pay auction , stabilisation , experiment
Abstract: We study with the help of experiments a two-player second-price all-pay auction. Such an auction describes e.g. the situation of a country were stabilisations are achieved through tax increases that eliminate a budget deficit. If these tax increases have distributional implications then stabilisation may be delayed (Alesina and Drazen, 1991). We find (1) under-dissipation and not over-dissipation of rents which is in contrast to other all-pay auction experiments. (2) Underdissipation decreases with increasing cost of distortionary taxation and increases with bidding cost. (3) Bidding is closer to the equilibrium on the individual than on the aggregate level. (4) The speed of stabilisations is smaller than the risk neutral Bayesian equilibrium and reacts less sensitively to changes in the cost of distortionary taxation.
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