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Investment under Uncertainty in Dynamic Conflicts

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  • Mattias Polborn

Abstract

This paper analyses a model in which two groups repeatedly compete with each other for a prize in every time period. We assume that there is a status quo bias: if there is a fight today, yesterday's winner is in a stronger position than the other group. Hence, a change of the status quo has long-term consequences that groups need to take into account. Important applications of this model include lobbying for legislation and political transitions through revolutions. We analyse the strategic timing of attacks on the status quo, which is similar to investment decisions under uncertainty. We find that the attack threshold is considerably lower than in a comparable one-period game, and that the expenditure level necessary to change the status quo is low in comparison to the prize; this provides a possible solution to Tullock's “rent-seeking paradox” in lobbying. Copyright 2006, Wiley-Blackwell.

Suggested Citation

  • Mattias Polborn, 2006. "Investment under Uncertainty in Dynamic Conflicts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 505-529.
    • Handle: RePEc:oup:restud:v:73:y:2006:i:2:p:505-529
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2006.0385.x
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    Cited by:

    1. James Lake & Maia Linask, 2015. "Costly distribution and the non-equivalence of tariffs and quotas," Public Choice, Springer, vol. 165(3), pages 211-238, December.
    2. Denter, Philipp & Sisak, Dana, 2015. "Do polls create momentum in political competition?," Journal of Public Economics, Elsevier, vol. 130(C), pages 1-14.
    3. Vladimir Petkov, 2023. "Prize formation and sharing in multi-stage contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(1), pages 259-289, January.
    4. Dan Kovenock & Brian Roberson, 2009. "Is the 50-State Strategy Optimal?," Journal of Theoretical Politics, , vol. 21(2), pages 213-236, April.
    5. Samuel Häfner & Georg Nöldeke, 2022. "Sorting in iterated incumbency contests," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(4), pages 1103-1140, November.
    6. Florian Morath & Johannes Münster, 2013. "Information acquisition in conflicts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(1), pages 99-129, September.
    7. Mohammad Reza Mirhosseini, 2016. "Optimal wages for politicians," Southern Economic Journal, Southern Economic Association, vol. 82(3), pages 1004-1020, January.
    8. Achim Voss & Mark Schopf, 2018. "Special interest politics: Contribution schedules vs. Nash bargaining," Economics and Politics, Wiley Blackwell, vol. 30(2), pages 256-273, July.
    9. Leppälä, Samuli, 2021. "A partially exclusive rent-seeking contest," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 60-75.
    10. Lepp l , Samuli, 2018. "Partial Exclusivity Can Resolve The Empirical Puzzles Associated With Rent-Seeking Activities," Cardiff Economics Working Papers E2018/25, Cardiff University, Cardiff Business School, Economics Section.
    11. Mohammad Reza Mirhosseini, 2016. "Optimal wages for politicians," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 1004-1020, January.
    12. Schneider, Maik T., 2014. "Interest-group size and legislative lobbying," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 29-41.
    13. Konrad, Kai A., 2010. "Dynamic contests," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2010-10, WZB Berlin Social Science Center.
    14. R. Aytimur, 2014. "Importance of status quo when lobbying a coalition government," Economics of Governance, Springer, vol. 15(3), pages 203-219, August.
    15. Münster, Johannes & Staal, Klaas, 2005. "War with Outsiders Makes Peace Inside," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 75, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    16. repec:wly:soecon:v:82:3:y:2016:p:1004-1020 is not listed on IDEAS

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