Matthias Dahm

Foundations for contest success functions

In the literature, the outcome of contests is either interpreted as win probabilities or as shares of the prize. With this in mind, we examine two approaches to contest success functions (CSFs). In the first, we analyze the implications of contestants’ incomplete information concerning the ‘type’ of the contest administrator. While in the case of two contestants this approach can rationalize prominent CSFs, we show that it runs into difficulties when there are more agents. Our second approach interprets CSFs as sharing rules and establishes a connection to bargaining and claims problems which is independent of the number of contestants. Both approaches provide foundations for popular CSFs and guidelines for the definition of new ones.“The strategic approach also seeks to combine axiomatic cooperative solutions and non-cooperative solutions. Roger Myerson recently named this task the ‘Nash program’.”(Rubinstein 1985, p. 1151)

Informational lobbying under the shadow of political pressure

We examine the incentives of an interest group to provide verifiable policy-relevant information to a political decision-maker and to exert political pressure on her. In our view information provision is a risky attempt to affect the politician’s beliefs about the desirability of the lobby’s objective. The circumstances under which political pressure can be applied specify the lobby’s valuation of different beliefs of the politician and, thus, her attitude toward risk. We identify several factors that induce risk proclivity (and thus information provision), which allows to explain the stylized fact that lobbies engage both in information provision and political pressure. Moreover, our approach gives a novel explanation for the fact that interest groups often try to provide information credibly. We finally study the extent to which this preference for credibility is robust and identify some instances in which lobbies may prefer to strategically withhold information.

Foundations for Contest Success Functions

We examine two approaches to contest success functions. In the first we analyze the implications of contestants´ incomplete information concerning the `type´ of the contest administrator. While in the case of two contestants this approach can rationalize prominent contest success functions, we show that it runs into difficulties when there are more agents. Our second approach interprets contest success functions as sharing rules and establishes a connection to bargaining and claims problems which is independent of the number of contestants. Both approaches provide foundations for popular contest success functions and guidelines for the definition of new ones.

Efficiency and Stability in a Discrete Model of Country Formation

This paper studies efficient and stable country configurations in a simple model of country formation. Driving force of the model is a trade-off between the benefits of large countries and the costs of heterogeneity of large and diverse populations. We show that efficient configurations as well as stable configurations exist for each value of the model parameter; however, there is no unambiguous relation between them. Moreover, country sizes in efficient configurations may differ by at most two, while in stable configurations the differences in their sizes may be relatively high. Our results contrast with those of Alesina and Spolaore (1997).

Credence goods, costly diagnosis, and subjective evaluation

We study contracting between a consumer and an expert. The expert can invest in diagnosis to obtain a noisy signal about whether a low‐cost service is sufficient or whether a high‐cost treatment is required to solve the consumer’s problem. This involves moral hazard because diagnosis effort and signals are not observable. Treatments are contractible, but success or failure of the low‐cost treatment is observed only by the consumer. Payments can therefore not depend on the objective outcome but only the consumer’s report, or subjective evaluation. A failure of the low‐cost treatment delays the solution of the consumer’s problem by the high‐cost treatment to a second period. We show that the first‐best solution can always be implemented if the parties’ discount rate is zero; an increase in the discount rate reduces the range of parameter combinations for which the first‐best can be obtained. In an extension we show that the first‐best is also always implementable if diagnosis and treatment can be separated by contracting with two different agents.

Free mobility and taste-homogeneity of jurisdiction structures

We consider a population of agents distributed on the unit interval. Agents form jurisdictions in order to provide a public facility and share its costs equally. This creates an incentive to form large entities. Individuals also incur a transportation cost depending on their location and that of the facility which makes small jurisdictions advantageous. We consider a fairly general class of distributions of agents and generalize previous versions of this model by allowing for non-linear transportation costs. We show that, in general, jurisdictions are not necessarily homogeneous. However, they are if facilities are always intraterritory and transportation costs are superadditive. Superadditivity can be weakened to strictly increasing and strictly concave when agents are uniformly distributed.

Implementing registries and results databases of clinical trials: is there a side effect?

Many parts of the world are currently witnessing a controversial discussion concerning the appropriate design of the environment for clinical trials. The catalyst of this debate has been a number of highly publicized cases in which pharmaceutical firms are accused of having selectively disclosed evidence on marketed drugs. Many participants in the discussion promote greater transparency in clinical trials and support the introduction of mandatory clinical trials registries and results databases. This report draws upon prior work by the authors analyzing the effects of these regulations on a pharmaceutical firm’s incentives to conduct clinical trials. Our findings add a new dimension to the discussion since they show the existence of a trade-off – as intended, registries and databases have the potential to increase transparency in clinical trials but they are likely to reduce the incentives to carry out clinical trials. This does not imply that these regulations are undesirable but it underlines the need for more research to be conducted on the incentive effects of these policies, because an informed policy choice must take into account all likely consequences of regulatory action and balance conflicting goals.

Lobbying of Firms by Voters

A firm may induce voters or elected politicians to support a policy it favors by suggesting that it is more likely to invest in a district whose voters or representatives support the policy. In equilibrium, no one vote may be decisive, and the policy may gain strong support though the majority of districts suffer from adoption of the program. When votes reveal information about the district, the firms implicit promise or threat can be credible.