Chen Cohen

Unfair Tax Effects on Bids in an All-Pay Contest with a Possible Tie

This paper examines experimentally the effect of a different payment mechanism in the case of a tie on an agents willingness to pay (WTP) in a winner-take-all contest. We examine how a small chance to pay tax in case of a tie affects the contests bids. Our hypothesis is that the tax payment is perceived as unfair and as a result has a non-proportional effect on the bidders. The experimental results indicate that although the probability of a tie is quite low, the participants overweight its importance in determining their bids. As a result, they sharply decrease their bids in the case of a tax which is perceived unfair.