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Journal of Risk and Uncertainty

, Volume 56, Issue 3, pp 289–305 | Cite as

Risk and risk aversion effects in contests with contingent payments

  • Liqun Liu
  • Jack Meyer
  • Andrew J. Rettenmaier
  • Thomas R. Saving
Article
  • 148 Downloads

Abstract

Contests by their very nature involve risk, winning and losing are both possible, and the gain from winning can itself be uncertain. The participants in a contest use resources to increase their chance of winning. The main focus of this analysis is on the effects of risk aversion and risk in contests where only winners pay for resources used to compete. When payment is contingent on winning, the effect of risk aversion is in the opposite direction of what occurs when costs are paid by both winners and losers. A number of contests observed in the marketplace that exhibit this contingent payment property are discussed.

Keywords

Risk aversion Contests Contingent payments Self-protection Ross risk aversion Downside risk aversion 

JEL Classifications

C72 D72 D81 

Notes

Acknowledgements

We want to thank Adam Narkiewicz, Nicolas Treich, an anonymous reviewer, and the session participants at the 2017 EGRIE seminar in London, for very helpful comments and suggestions. All remaining errors are our own.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Liqun Liu
    • 1
  • Jack Meyer
    • 2
  • Andrew J. Rettenmaier
    • 1
  • Thomas R. Saving
    • 1
  1. 1.Private Enterprise Research CenterTexas A&M UniversityCollege StationUSA
  2. 2.Department of EconomicsMichigan State UniversityEast LansingUSA

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