Ruhr Economic Papers

Ruhr Economic Papers #809

Is it really Overdissipation? A Reassessment of Evolutionarily Stable Behavior in Contests

by Wolfgang Leininger

TUD, 05/2019, 14 S./p., 8 Euro, ISBN 978-3-86788-938-4 DOI: 10.4419/86788938

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Abstract

The term ”rent-dissipation” is prominently used in the theory of rent-seeking and its (game) theoretical
vehicle contest theory. While in a pure strategy Nash equilibrium of a contest with finitely many players full rent-dissipation cannot occur, this is not the case if the same contests are analyzed with the solution concept of an evolutionarily stable strategy (ESS). Notably, even over-dissipation of a rent in pure strategy ESS is feasible! The paper explains these differences from a principle point of view by linking the ESS-solution theory in contests to the Nash equilibrium solution theory of transfer contests. This insight then not only makes the computation of the ESS-solution of a contest from the Nash solution of a transfer contest an easy exercise, but-more importantly - also leads to a reassessment of the ESS-”over-dissipation” results in the earlier literature: if one replaces the value of the rent with its transfer value, over-dissipation becomes incompatible with ESS, too.

JEL-Classification: C73, D72, D82

Keywords: Contests; evolutionarily stable strategy; finite population; overdissipation

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