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

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  • Kirchkamp, Oliver

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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  • Kirchkamp, Oliver, 2004. "Why are stabilisations delayed : an experiment with an application to all pay auctions," Papers 04-06, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2738
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    More about this item

    Keywords

    War of attrition ; all-pay auction ; stabilisation ; experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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