Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Auction Imperfections and Political Economy Modelling No. G8-V1
This article investigates the impact of societal structure on behavior in competitions that can be modeled as all-pay auctions with identity-dependent externalities. The consideration of identity-dependent externalities, which naturally arise in the most common applications of all-pay auctions, enables us to define players' individual characteristics in society (in particular radicalism and centrism) not only for arrangements on the line but more generally. We ?nd that even with a high ratio of centrists in comparison to radicals extremism, characterised by higher expenditure by radicals in comparison to centrists, persists. Moreover, for environments with two radical players we show that there exists a symmetric equilibrium in which all moderates bid zero with certainty. This equilibrium is the unique symmetric equilibrium if there is only a single centrist player. Our results suggest that the active participation of centrists in equilibrium remains characteristic for lottery success functions in the presence of identity-dependent externalities, and therefore that the chosen contest success function was crucial for predictions about extremism and moderation that can be found in the political economy literature.